Why I Can’t Bank At Wells Fargo

A Wells Fargo Senior VP, Cheronda Guyton moved into a foreclosed $12 million mansion with her family and hosted extravagant house parties.  Meanwhile, her job is to figure out how to profit from foreclosures (well done!), but she didn’t allow brokers to show the Wells Fargo-owned place because her family was squatting!

I knew there was something funny a couple years ago, when I was talking to one of their mortgage brokers and the rates he was quoting were 50-100bps higher than everyone else.  Bank of America got my business instead.  Too bad Ken Lewis was so empire-building driven and panic bought Merrill at the market open, instead of after the close.  What’s $25 billion more between between shareholders?

Given we live in bizarro world, don’t be surprised if Wells Fargo goes ahead and promotes her to lead up a different department.  After all, Wells Fargo does technically own the foreclosed home, and can do what they will.  Their $60,000/month vacation rental asking price might sound excessive, but not as excessive as Cheronda Guyton not letting anybody rent it out because she wanted to pump up the base herself!

Great to see our $25 billion in tax payer bailout money be put to good use.  Thanks for everything Cheronda.  Tell you what guys, since we are PR experts here at Financial Samurai, why don’t you Cheronda donate the $240,000 in lost rental income to the LA firefighter’s fund, and ask your employer to match it.  Here’s your article with further details.

Keigu,

Financial Samurai – “Slicing Through Money’s Mysteries”

Property Makes People Think Irrationally

Over at a new found site called ” The Writer’s Coin,” the 28 year old personal finance writer questions whether he should buy this house if he only has 13% down. Mind you, he has been giving personal finance advice for a couple years now, and is even a guest poster on mega-site Wisebread, which Financial Samurai may one day contribute to. Honestly, I felt like I was watching one of those Holiday Inn commercials reading his post. A guy would provide some great advice and become a medical doctor because of his one night stay at the hotel chain. But what about the next night when he has to sleep at home?

WC’s question got me thinking. If someone who has been disciplined enough to write about money matters still can’t see the fallacy of buying a house with only 13% down, why are we so weak when it comes to housing? Do people just blindly fall in love with something and disregard every financial principal?  Doesn’t seem like WC has much more saved up than 13%, because who says “13% down” anyway? Why not 10%, 15%, or 20%?  Heck, back in the good old old days, people paid 100% down.

How did we come to this pitifully low downpayment standard in America? Probable explanation #1) It’s the Madoff Syndrome aka greed! “I want this, and I want it now!” and #2) The Nesting Syndrome.  There is a tendency for those in a long term relationship who want children to buy a place. I don’t even have to read WC’s about page to guess he’s planning on getting married or having kids. For the guy specifically, the itch seems to start at 30, if not sooner. The desire of owning our own castle and showing we’ve “arrived” is strong. 

BusinessWeek’s 10 Best Places To Own Property

Honolulu, HI

Honolulu, HI

BusinessWeek

comes out with a Top 10 list of best places to buy vs. rent.  This is their formulation in their words:

“To create a fair match-up between owning and renting, we calculated ownership costs assuming a fixed 30-year loan for 100% of the purchase price with no down payment. If they had instead decided to factor in a 20% down payment, owning would have been the cheaper option for the top 10 metros on our list.”

The problem I have with this list is that I don’t see the words “Honolulu”, “Newport Beach,” “Malibu”, “San Francisco”, or “Paradise”! Everywhere one wants to live is expensive, and everywhere one doesn’t really prefer to live is cheap. Things are cheap for a reason, and real estate is no different.

Think about prime real estate sitting a top a triangle. The triangle’s base always gets wider as demand continues to grow.  Meanwhile there’s only one prime location.  Is it no wonder why Realtors always talk about “location, location, location”?  You can also think of your sub-prime location as an inverted triangle ready to topple over.  Only a very few want to buy, and the supply is overwhelming.

During this real estate correction, you’ve seen expensive areas such as San Francisco correct 15-20% from the peak, however, drive out 1 hour east and places such as Antioch and Pittsburgh have gotten crushed by 40-60%.  If you’re an investor, focus on places where you’d actually see yourself willing to live in.  After all, if you wouldn’t want to live in your property, why would someone else?

A similar purchasing analogy can be made with cars.  You may think that someone buying a limited production Lamborghini Gallardo Spyder for $210,000 is foolish with his money.  But, after one year later, he’ll sell that Lambo for more, or at the least recoup more than if he had bought a brand new Ford Expedition for $48,000.  Obviously this example is extreme here, given most don’t have $200K to splurge on a car, but you get my point.

Things are cheap for a reason. Only if you have the financial means, and are already living in one of these 10 cities should you consider buying.  Otherwise, just focus on buying or renting in that tropical paradise in the best location possible.

Read more to see what paradise cities lie in BusinessWeek’s Top 10 list!

Note To Self: Buy More Rental Property!

If there’s one thing I know I will regret 15 years from now, it’s not buying property over the next 12 months.  Last Friday’s 7.6% YoY jump in existing home sales was a big shocker that helped propel the stock market to new highs.  What’s exciting though, is that the property markets have lagged, creating what I think is a golden opportunity to pick up some rentals for one’s retirement.

If you look around the world, from the UK to Hong Kong, property prices have rebounded double digits this year. Yet, the US is slowly but surely coming out of price declines largely because of still massive consumer debt overhang.  Volume growth generally always supersedes price growth.  Who knows exactly when the property market will bottom, but what we do know is how to calculate simple math to make proper purchasing decisions.

Go Broke To Win Big HELOC Edition – Maximize Your Home Equity

Some of you have asked me to write about property, a topic still dear to me despite the correction. First and foremost, I believe a property is not so much an investment but a lifestyle decision. When we choose to buy property, we’re choosing to plant roots in a neighborhood we love, and build our lives accordingly. Not to say you can’t do the same renting. When you have a large financial commitment to your abode, you tend to be less transient, all with a heightened sense of awareness that your home brings you great pleasure but also great financial responsibility.

When people get in the mindset of buying a property to flip, things can go seriously wrong due to the illiquid nature of the asset and the high transaction costs. Although the hurt in property has been broadcast everyday in every media outlet for the past year, less than 3% of the housing stock trades a year. In other words, the large majority of property owners shouldn’t be affected unless they just had to sell today. This is not a post about the merits of owning vs. renting, a topic which we can get into later.

Buying property is relatively straightforward. Your high tax bracket is killing you, you have at least 30% of the properties’ value in cash so that you can put 20% down and have a 10% buffer, you believe you’ll live in the place for 5-7 years, the rental yield compares favorably with the current gov’t 10 yr risk free rate, the place is nicer than anything available in the rental stock, and the location is good, so you buy. Let’s assume you own a piece of property, and you’ve got a nice big fat juicy Home Equity Line of Credit (HELOC). You’ve noticed the HELOC rate drop to an outrageously low interest rate equal to Prime, or 3.25%. What do you do with it?