A Trillion Dollars in Student Loans

Recently I discussed student loans, and especially as they can present a problem to folks trying to buy a home. Because these loans always show up on credit reports they lower the amount that can be borrowed--and they are a debt that must be paid. Many banks make paying off a student loan a condition of the loan--before granting a mortgage. And the government has decreed even personal bankruptcy will not erase this debt. (Student Loans are treated like an IRS lien).

You might think that folks with student loans are mostly kids and the total of all student loans doesn't add up to very much. Well look again, student loans have been growing eight to ten percent a year for at least two decades, and now add up to one trillion dollars of debt outstanding—roughly $25,000 each for the 40,000,000 former students who owe this debt.

And these former students are no longer kids, approximately 40 percent of the debt is owed by people 40 years of age or older. So when politicians talk about maintaining low interest loans to "help kids go to college", more often than not their help is going to middle-aged individuals long gone from the halls of academia, and whose interest today lies anywhere but their ancient student loans.

With this as an introduction, I just received a memo written by Richard Vedder—the author of Going Broke by Degree: Why College Costs Too Much. Let me share some of his thoughts regarding federal student grant and loan programs.

(1) Since student loan interest rates are always set by Congress at below-market rates, often too much money is borrowed for college. Currently the key rate is 3.4 percent—which, after adjusting for inflation, is approximately zero. Here is a perfect example of the fundamental problem facing our nation today: politicians pushing programs whose benefits are visible and immediate; while their long term costs are put off on future taxpayers. (Some call it kicking the can down the road).

(2) Colleges are responsible for allowing loan commitments to occur, but they face no penalties or negative consequences when defaults occur, (this is an obvious conflict of interest which imposes the costs  and penalties on taxpayers). And consider this: a top student at M.I.T. pays the same interest rate as a below average student at a state university. College graduates who get good jobs are what the programs were designed for, whereas students who fail to graduate fail the system as well as themselves. 

(3) The cheap money from the grant and loan programs has contributed to the tuition price explosion. Students are not nearly as sensitive to college costs that they can finance. Colleges and universities take advantage of that and raise their prices to capture the funds earmarked to help students. This is what happened in health care, and is what is currently happening in higher education.

(4) College Enrollments have increased due to the federal loan programs. But in today's job market the number of new college graduates far exceeds the number of new jobs—positions that college graduates have traditionally taken. 54 percent of recent college graduates are underemployed or unemployed. It's estimated there are 107,000 janitors and 16,000 parking lot attendants with bachelor’s degrees. And many of these folks are still struggling to pay off student loan obligations.

(5) The federal government underwrites student loans by borrowing 30 to 40 percent of the money it currently lends, much of that from overseas. Thus Americans are incurring long-term obligations to foreigners to finance loans so largely middle class students can go to college.

(6) A growing percentage of those going to college simply should not be there. These are students who cannot or do not master much of what college students are expected to learn. As a result, many students change majors over and over and either do not graduate or fail to graduate on time. Approximately 40 percent of Pell Grant recipients take six years to graduate, and many others simply do not finish. Today's students spend on average less than 30 hours per week on academic work—less than they spend on recreation.

(7) In a recent North Carolina student loan fraud case the judge wrote: With funds so readily available there is a temptation and opportunity for persons to acquire low interest student loans--with the intention of dropping out of school--and use the proceeds for other purposes. (In North Carolina, the case he refers to was former students who started up a t-shirt business using student loan money.)

With the federal government continuing to spend more and more taxpayer money on higher education at an unsustainable long-term pace, a re-thinking of trillion dollar federal student financial aid policies is a good place to start in meeting America’s economic crisis.

Dane Hahn is a real estate professional practicing in New Hampshire and Florida. You can reach him at dane.hahn@gmail.com or by phone at 941-681-0312. See him on the web at www.danesellsflorida.com

Higher Education, Or Just Bogus Coursework...

Back in February 2012 the National Association of Home Builders Housing Market Index had doubled from September 2011 to February 2012 in builder confidence in the construction of new single-family homes nationwide.  Lots of real estate professionals - developers, builders, contractors, lenders, suppliers, you get the idea - were happy about this and keeping their fingers crossed.

This month The Sarasota Herald Tribune checked with Anchor Builders, whose head honcho confirmed that things are better now than they were last year.

The Tampa Bay Business Journal checked with the division-marketing manager of Taylor Morrison, who confirmed that Florida appears to be in the early stages of recovery.

Business Week Magazine checked with Gainesville builder Barry Rutenberg, who confirmed that the NAHB report is showing the reality of a gradual improvement in the housing market—but expect this from Rutenberg, since he’s also chairman of the National Association of Home Builders. And Rutenberg went on to say that as soon as the housing business is back on it’s feet, he expects to see the economy and jobs market recover.

What?  That’s not how it works.  The jobs have to come back to make the economy correct, and then—and only then—will the new home business get back on it’s feet.  Here in Florida, we’ve been hit harder than almost any other part of the country in this housing crisis and it’s not going to be a fast recovery no matter how much we would all like to see that happen.  But jobs have to come first.

But let’s take a minute to look between the headlines—what will it take to get the jobs back?  Rutenberg suggests more college education will be needed to fill the jobs that will keep America strong.  On the one hand, it’s great to hear some leaders, at least, are anxious to keep America in the forefront of worldwide business.  On the other hand, the diploma business (formerly called higher education) has become another of our outdated and over-rated business, populated with over-paid administration and under motivated instructors, teaching required courses that have almost no application to real world use.

There was a time when a willing employee first took on an apprenticeship and learned a business from the ground up.  Granted this probably has more application to manufacturing than to high technology, but the apprenticeship made sure the employee knew the ropes (as they used to say on tall ships).  Today an apprenticeship can be found in military service, or perhaps in a Jr. college with internships.  But generally, when a newly minted graduate accepts a job, he or she is really not ready to contribute, and must still undergo some kind of additional company training.

So much for all the student loans, expensive text books, courses of study that lead nowhere, crappy apartments and beer drinking contests.  After four years of what college has become, it’s no wonder that we get the Occupy Wall Street types who are now certain they should get free education forever, and law graduates who sue their law college for misleading them that they would get a good job upon graduation.

Come on people, there’s no free lunch.  Take a long look at college presidents and bloated administrators who make huge salaries every year running institutions that turn out over-educated disgruntled 20-somethings.  It’s time to forget the 4-year programs that don’t prepare students for real jobs and get back to teaching what’s needed for the student to become personally successful and will make that graduate aware of what’s needed in the American work force. Make it a one or two—or even a three year diploma, but make it count for something.

Advances in robotics and software, are already bringing blue-collar manufacturing back to America.  Consumers want to “Buy American”. Web-enabled cell phones, notebooks and tablets are creating vast new possibilities and today bring high-quality, low-cost education not just to every community college and public school but also to every home.  And with that, plain old Americans can afford to acquire the skills to learn 21^st-century jobs. Cloud computing is giving anyone with a creative spark cheap, powerful tools to start a company with very little money.

Dane Hahn is a real estate professional practicing in Florida and New Hampshire.  You can reach him by email at dane.hahn@gmail.com or on the web at www.danesellsflorida.com.

Jobs on the Return, Can Real Estate be far Behind?

I just received a missive from the Florida Association of Realtors, dealing with the employment outlook and how that affects our housing market. In the world according to Dane, there are two things that are slowing down the real estate market. Income and Confidence. Both are needed when a family decides to make a commitment to buy a home. This of course boils down to “good” jobs.

The employment outlook has been so bad for so long that as jobs return, buying a house will not be the first major outlay a family will make, especially if there are credit cards and family expenses that have accumulated—but the jobs are the key to a real estate recovery.

And our customer's inability to sell their present home, to “move on”, robs them of the independence a healthy marketplace provides. Obviously this second function results in a limited number of ready buyers, which comes back to the first issue.

All the other variables that make a strong housing market are in place; good inventory, good price points, good loan rates, and willing buyers and sellers. (And lots of Realtors).

And speaking of Realtors, Erica Cross, research analyst for the Florida Realtor Association has generated local year-over-year changes in the job market due to seasonality. Obviously, employment is affected by seasons, and that's one reason we remove farm jobs from the totals—while a farmer may have full-time employment, his employees are seasonal. Therefore the Association chooses to look at Florida’s employment change as a percentage of last year instead of a month-to-month change.

Florida’s total non farm employment is the combination of private employment and government employment. Non farm and private employment are the key drivers of economic growth. The graph below shows the year-over-year change in Florida’s total non farm and private employment from 2008 to present. The graph shows growth, without showing pain. (If, for example, half of all jobs were lost, it would go down by 50%—but if they were regained, it would double—always being based on “last year”.)

But back to the good news, each month since August 2010 has experienced positive growth in employment on a year-over-year basis. In May 2012, Florida employment was 8,506,000, some 200,000 more than in May 2011. The graph doesn't really show that unemployment was 8.5% in May 2012 compared to 10.3% in 2011. But you get the idea, figures don't lie, but liars sure figure...

Nonetheless, we are seeing marginal positive news. Employment and housing sales generate nearly the exact same graph. So as Florida makes employment gains, the state’s real estate market, both residential and commercial, will improve. We are looking at this recovery through a foggy window. And what we see is the state's overall economy progressing, albeit slowly. Federal Reserve Chairman, Ben Bernanke, noted this week that the National unemployment rate is likely to hold in the 8% range for two more years, but there will be success stories on a state by state basis.

With  Florida's tourism engine and excellent climate, these are two extreme magnets to bring people and jobs to the region—magnets that other states just don't have. If Congress could pass a political initiative to grow jobs by adjusting regulations on all of us and lowering taxes on those employers who actually create new jobs, that would be a huge help and would appeal to manufacturing and transportation as well. But it's complicated...

Dane Hahn is a real estate professional practicing in Florida and New Hampshire. You can reach him at 941-681-0312 or by email at dane.hahn@gmail.com 

Size Matters

Every town or county has a fairly strict building code that determines what you can build. There are always young buyers who want to know if an existing home is “up to code”, which of course it does not have to be.  Code is what you have to be “up to” if you are building new or modifying an existing home.  But codes change so often that it would be impossible to keep an existing home actually “up to” today’s code.

And besides the codes, there are covenants.  Most of the subdivisions I have dealt with over the years have some sort of covenants and usually some by-laws as well.  In the covenants are rules that are stricter than the municipal codes—the original developer generally designed these covenants—maybe 20 to 50 years ago, and more and more, these rules become outdated.  Of course having just come from my 50^th high school reunion, I can see the logic behind the old rules and I see the evolution of the new rules as well.  Let me elaborate.

Years ago when we were designing covenants, we assumed that a particular builder may not be the only builder in a sub-division development, and so—in order to create a unified look and protect each buyer’s investment and the value of the development as a whole—certain rules would be made that all the builders would have to follow.  For example, (one of our developments mandated:) no house would be smaller than 2000 square feet.  To keep the neighborhood neat, every house would have a 2 car garage; fences would only be allowed in the “back yard”; every lot would be fully cleared to it’s sidelines so visually the homes would flow together; and every house would have a tile roof to give a “Spanish” look; rules like that.

But that was then, this is now.  Today we are thinking greener, and beginning to see that smaller houses are more efficient in every way; we’re seeing that tile roofs leak and blow off in hurricanes; and that 2-car garages are nice, but people still leave their cars in the driveway or on the street; and regarding fences, well now that we have “invisible fences” maybe they’re not as important to contain the dog as they once were.

The reasons to build big homes were fairly clear, if every house were big, then the neighbor hood would be one of McMansions.  It used to be folks would come into the office and say, “we’re qualified for a $350,000 house, so show us what there is.”  Generally what appealed to them was the biggest house in their price range.  Buyers liked that they lived in a “special” neighborhood, loans were easy to get, and there were many who profited from the ever-bigger houses (banks, municipalities and the housing industry in particular) and today these groups are now facing the outcome.  To wit, the big houses have become hard to buy or sell just now. (Who has 20% to put down?).

Today the average American home is one of the largest in the world (it is four times the international average). When you consider the immediate revenue generated by oversized houses through permits, construction materials, labor, infrastructure development and land costs, as well as the ongoing property taxes, and costs of heating and cooling, remodels, maintenance of roofs and siding and (perhaps most notably) mortgage interest, it’s no wonder the large homes have been so popular with state and corporate groups alike.  But the long-term cost of these policies becomes clear when borrowers are, predictably, unable to make oversized payments on their oversized investments.

Our most appealing neighborhoods are the ones more homogenized, ones allowing residents to walk from home to a coffee shop or some other appealing location.  Clients ask for "downtown" locations (or locations near public transportation) so they can commute to work without having to drive.  Watch for more developments with these owner-friendly concepts in place.

Dane Hahn is a real estate professional practicing in New Hampshire and Florida.  He can be reached at 941-681-0312 or at dane.hahn@gmail.com.   

Retirement Home for sale

Everybody plans to retire at some point in their life and most of us have our own vision of what that will be like.  Probably your vision of a retirement home will not be anything at all like the home you live in today.  I would wager that like me, your idea of a great place to retire includes warmer climates, golf courses or beaches and the like, it might include being surrounded by your kids and grand kids and whether this is right or wrong, it's a healthy way to see the future.

But then there comes the time when health of one spouse or the other begins to weaken; and we continue to grow older, our parts wear out and the damn doctors can be so restrictive.  But active seniors should rejoice--enjoyable life doesn't have to come to a screeching halt just because going to Disney World is no longer a burning desire. There are lots of really nice retirement communities where a good "quality of life" and time with other folks is more important than the vacation atmosphere.

One such community--and the one I have intimate knowledge of--is Londonderry Retirement Community, located in Easton, Maryland. It could not be more lovely, and is a collection of buildings including some apartments, but also many smallish homes, some are 1-bedroom, but many have 2 bedrooms, plus living/family rooms and kitchens with stainless appliances and granite counter tops.  Some of the homes even have sun rooms or screened porches and patios. But in spite of the in-home amenities, there are dozens of activities and all the public rooms of a moderate-sized college.

Meals are enjoyed in a large gracious dining room, with a menu that changes daily.  There are the standard deli items, but usually there are three or four entrees from which to choose, at either lunch or dinner.  If you walk around the campus you'll find there is a fine library, lovely glassed-in sun porch, and a living room where games like Wii are played, movies are watched and parties are held. In the Manor house, which is an historic home on xxx creek, there are a number of public areas, including a billiard room, private dining rooms, screened porches for receptions and a wonderful octagonal swimming pool and croquet field--all in a waterfront layout.

Folks who live in Londonderry get 24 hour security, a nurse on call, and assistance whenever it's needed.  They enjoy a free membership to the YMCA, and have several buses to run them into town for hair appointments, doctor visits and general shopping.

The homes are usually sold, although there is at least one for rent right now. You can become an owner--depending on the size of the unit you pick--for something in the $200,000 to $240,000 range.  There is a monthly fee that includes all services, meals, security, medical overview, taxes, plus electric and maintenance. Londonderry is a Cooperative and it is overseen by the members who live there, but operated by professional managers, so the services offered are all top quality.

These homes are not listed in any MLS or with any Realtor. For more information, call Michelle Burgoon, 410-820-8732.  or  410-820-4295. Tell her Dane sent you.

Dane Hahn is a Real Estate professional practicing in both New Hampshire and Florida (and is an owner of one of the units at Londonderry that is for sale).  You can reach him at 941-681-0312 or 603-566-5460. Or send him an email at dane.hahn@gmail.com

Help Wanted, Real Estate Sales II

Q.  I read your col­umn and really wanted to con­nect with you as I am look­ing into pur­su­ing a career in real estate. Think you could offer any tips?

A. Real Estate as a pro­fes­sion is a full-time com­mit­ment; you can’t work in an office in some other field AND work in real estate, so you’ll need some sav­ings. There are lots of expenses, and your first check is three to six months away. If you are wealthy enough so you sim­ply don’t need the money, that would be help­ful. If you are on unem­ploy­ment and have 99 weeks of ben­e­fits still to come in, that will be help­ful as well.

As a salesman, you MUST work for a Real Estate Company. So find a real estate agency office that needs you (not a huge office some­where where high pro­duc­ers rent their desks and run their own mini-corporations with lots of staff and won’t even learn your name for the first year). You may not believe me, but pass­ing the license exam will only allow you to work in real estate. In fact, you won’t know any­thing. A smaller office will have the time and desire to train you.

When pick­ing who to work for, you may be sur­prised that each Realty Office offers dif­fer­ent “splits” to their agents. Some will offer 50–50, some 60-40, some as high as 100 per­cent. But if you’re a new­bie, don’t worry about get­ting the best split from the bro­ker until you’ve proven that you like the busi­ness and have a few sales under your belt. Then you can rene­go­ti­ate your split, or go some­where else.

Focus on res­i­den­tial homes until you’ve cut your teeth. Then, if you have the desire, con­sider expand­ing to com­mer­cial or leas­ing. The laws are dif­fer­ent in dif­fer­ent states, but, in gen­eral, your sin­gle license will allow you to prac­tice in all those cat­e­gories. You will soon come to under­stand that work­ing up a lease or a con­tract might be thought of as prac­tic­ing law. And most states do not want you to prac­tice law with­out a license.

There are a few other rea­sons why you might con­sider com­mer­cial real estate. Res­i­den­tial agents are busiest on week­ends and many may only take Mon­day and/or Tues­day off. If you have small chil­dren, you will have to decide who will get your time. Com­mer­cial Real­tors gen­er­ally work 9 a.m. to 5 p.m., Mon­day through Fri­day. But even though the com­mer­cial deals are larger, there are fewer of them. It’s not unusual for a com­mer­cial agent to make a check for $50,000, but not get paid for 12 to 18 months. Most agents can’t wait that long to get paid. But if you have invested you time wisely, and have “deals” in your pipeline, it’s a good liv­ing and com­mer­cial may be the way to go.

Lots more tips in my old columns, most of them are posted here. Look back to see them

Q. Appre­ci­ate that fast response, Dane.

Unfor­tu­nately, with the econ­omy sit­ting the way it does, a full-time office job dur­ing the day is my only option as of right now. I have some sav­ings to help with a tran­si­tion but it won’t be for a few months yet.

Watch­ing the eco­nomic cli­mate and larger cities that are begin­ning to rebound, I think now is the time to get vested in the indus­try, but with my bills, unem­ploy­ment just isn’t an option right now.

I’ll have to read some of your older blogs to really get a sense of what I have to do. Com­mer­cial real estate is def­i­nitely some­thing I will look into.

A. I come from a fam­ily of Real­tors. My mother was a Real­tor, my wife was a Real­tor, and my daugh­ter is a Real­tor. I remem­ber once telling my daugh­ters that my one career regret was that I hadn’t found real estate sooner. I had a room­mate in col­lege who was major­ing in real estate, but I came to real estate after a pretty good career in pub­lish­ing. Still, you are your own boss, you set your own hours and decide for your­self how hard you are will­ing to work — and how long you will want to work. In reeal estate you don’t have to retire at 65. (On the flip side, if you do get a gold watch when you turn 65, it’s probably one you bought for yourself…)

Dane Hahn is a real estate pro­fes­sional prac­tic­ing in Engle­wood Florida and New Hamp­shire. You can reach him at dane.hahn@gmail.com, or by phone at 941-681-0312. See him on the web at http://www.danesellsflorida.com

A Little Fraud Mixed with Elder Abuse

This week I added “Expert Witness” to my resume. It was the first time I have been asked to testify in court regarding a real estate transaction. Actually I was asked back in January, but the court system being what it is, the case was postponed and finally scheduled for this week.

I suppose you might call it a fraud case, mixed with some elder abuse, and some simple flimflamming.

The Plaintiff’s lawyer discussed his case with me and asked my opinion as he explained his strategy. Naturally I did my homework and was ready to testify when the day finally came. Because the case is still in the courts, I won't get into too much detail here, but just to share with you how this event became a “perfect storm” I'll give you the basics of the case.

A large parcel of property was owned by a family trust, which in turn is managed by the family Monarch. He's an elderly man of Hungarian descent—he speaks with a moderate Hungarian accent, and it's clear English is not his first language. He bought the parcel some 40 years ago and has held on to it through good times and bad, until a few years back when he decided finally to sell it, and use the largess for his retirement. The parcel is comprised of 47 acres on a major highway, and it's zoned commercial.

One would think that the world would beat a path to his door for a large parcel such as this, but alas that was never the case. When the market was strong, he was greedy, and overpriced the land. As the market weakened, his price came down, but never enough to catch the good buyers. The second and third tier buyers—ones who needed owner financing—were always around, but there were always issues. Like wetlands.

A minor stream flows through the property, not much of a hindrance generally, but some years back there were the beavers who came on the property and built a dam. Soon there was a pretty big pond, and then the 47 acres was more like 32 acres and 15 acres of wetlands. Over time the beavers were trapped and their dam removed. But even so, each year they came back and started over. Finally a Canadian company was called to solve this problem with a unique drain pipe that moves the water past the beaver dam and empties the pond. The land was dry again, and the beavers were gone.

Fast forward to 2011. By now the property had been for sale for 7 years. The price was still high. But the land was dry and showed well. And the listing with the Realtor had just expired. Oddly at that exact time, the sellers the phone rang--a buyer was calling. A cash buyer. (Who had a long history of fleecing elderly landowners), but who was a sweet talker who could come right over. And when he arrived, he “happened” to have a contract out in the car. In an hour the buyer and seller had executed the contract on the seller's kitchen table, and they drove to a local bank to have it notarized and to then to the county courthouse to transfer the title. In 2 hours a 40 year ownership had changed into the hands of strangers.

The contract was not a standard “Realtor Contract”, rather it transferred the property to the buyer immediately. It created a mortgage on the land with no payments due until all permits were granted—and even then the payments would be interest-only for the next ten years, while allowing the new owners to sell off lots (and erode the collateral held by the seller) and subordinate the mortgage.

So the old fellow was screwed. His English skills really only allowed him to understand he had been offered his asking price, and that was enough. He transferred the land and in return had a mortgage with no income for the foreseeable future and the probability that this mortgage would be subordinated and even then it might simply go away. This was not what he thought he had agreed to, and it took some real gumption to call his lawyer.

His lawyer is an old family friend, but believes they have a strong case. I was happy to be asked to testify and share my experience in writing contracts and advising sellers in what a good deal looks like—and conversely--what a bad deal smells like. But when we appeared at the court, the judge determined that first the case should go to mediation. If mediation didn't solve the case, then it would be heard in October. The wheels of justice turn slowly. Meanwhile the seller is turning 83.

And so that's where we are, waiting to get the case to a mediator. In the meantime, I suggested a possible solution to the attorney which he proposed to the opposing council. The goal is to get the deed back into the hands of the trust--moving the ownership back to the family that has owned it all these years, (and “lost it” in a moment of haste). More to come on this topic as the case unwinds.

Dane Hahn is a real estate professional (and now a professional witness) practicing in Florida and New Hampshire. You can reach him at 941-681-0312, or at dane.hahn@gmail.com. See him on the web at www.danesellsflorida.com.