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Today is my last day in Miami.  I've put in some very low offers on some houses, and am still waiting to hear back from the banks.  None of these are houses that I'm "in love" with, but if I can get them at the price I offered then I got a real bargain.

I'm now only using REO listing agents when I put in offers, and if anyone bids higher than me I'm pretty sure they'll let me know.  So far there haven't been any other bids on these houses, even though they're REOs.  Sound strange to you?  Let me use a metaphor from my own life to explain why:

When I was 30 I'd made what I considered to be a lot of money (by running a small import business in Taiwan for 3 years).  I was sick of doing business, and dreamed of travel and freedom.  I suddenly got it into my head that I wanted to be a commercial pilot.  I put most of my money into Nasdaq stocks that had recently crashed (this was 2000) and kept aside enough money to pay for my flying lessons.  A few months later I met a very beautiful 29 year-old woman.  I shall call her "C" so that she can remain anonymous.  We fell in love.  She had just emerged from an 11 year relationship (with the only man she'd ever been with) and was traumatized by the experience: he'd dumped her and run off with his business partner, an attractive go-getter). 

In my opinion, the woman that C was dumped for was not nearly as intelligent or beautiful as C.  The only reasons that I could think of that C and her ex-boyfriend's relationship had failed was boredom, and different life goals.  C already had her Masters in Zoology, and was working on her PHD, when she decided to go back to uni. and start a 6 year medical degree.  While she was in her second year of medicine, her boyfriend, who also had a Masters in Zoology, started an Environmental Impact Company.  It was doing well, and he wanted C to help him full time, but she refused, sticking to her very demanding medical degree.  C's boyfriend then partnered up with the woman he was soon to run off with.

After C and I met we were together (very happily) for about 6 month, when one day I woke up to discover I'd lost all my money on the Nasdaq stocks.  I no longer had enough even to finish my commercial pilots license (you have to hire aircraft by the hour, which is unbelievably expensive),  Although I was in love with C (or at least knew that I COULD love her to the point of marriage) my options suddenly seemed limited.  It was at this time that my sister gave me a book on the coming rise of China.  Before I knew it my mind was already made up to radically alter my life.  To move to China would mean leaving C.  I couldn't expect her to dump her life and go with me (perhaps she would have though) and besides, I knew taking her to China with me would be a huge mistake and liability.  I'd made money in Asia before (in Taiwan), could speak OK Chinese, and knew what was in store for me.  Trying to take C with me would have doomed the mission to failure from the start.  So instead I broke up with her, and began making plans to leave.

She took it very badly.  She became a man-hater, having just been "dumped" by the only two men she'd ever been with.  My explanations (which seemed so logical to myself) landed on deaf ears.  She wouldn't believe that I was leaving her because of something I had to go far away to do.  She believed there was something wrong with herself.

The last time I saw her was 4 years ago, and she had no husband or even boyfriend, had quit the medical degree, and was working for a multinational.  She was as beautiful as ever.

The moral: even beautiful intelligent woman get passed over.

What's this got to do with buying houses in Miami?

Even good REO houses get passed over, if they've been "dumped" (IE. a pending sale fell through) or they've been "ignored" for a certain period of time. 

Why would a good house get ignored?

An REO will be put on the market at a price chosen by the bank's asset manager.  If he's an idiot he'll price it too high.  It will then fail to attract any bids, or may attract one or two very low bids, which the asset manager will snub his nose at.  It will then just sit on the MLS listing site for month after month, getting very little attention.  Eventually it will get a "stigma" of being unwanted and worthless.

REO buyers are all after virgins.  They pounce on anything new, so long as it's priced low.  The listing agent then plays all the bidders off each other (telling the buyers that there have been multiple offers) driving the price higher than the asking price.  Yet the REOs that were priced too high just sit and get ignored by all.  People see Days On Site (DOM) of 60-plus and they just look the other way.  But some of these houses are real steals, so long as you time it right.  If the bank's been waiting for high bids for months and months while turning down any very low bids, but then just as you submit your ridiculously low bid the asset manager get's pressure from his employer to move his REOs faster, your low-ball bid might just slip through.  I haven't been this lucky myself YET, but have seen a few such bids of other people get accepted this past month.

So the world of mating is very similar to the world of housing.  There are some very attractive women and houses out there that would make you very happy, yet if you just run around like all the other randy buyers chasing expensive virgins you're going to have such stiff competition you may end up on the shelf yourself.  Or you might get her, but end up paying way too much (models make very high maintenance girlfriends).

Another observation: in the whole month I've been here only 3 REOs came on the market in the areas I've been looking in.   All 3 got snapped up immediately.  This shows just how slow the REO business has become, and this is supported by the figures that came out yesterday:

 (Reuters) – Sales of previously owned homes fell more than expected in October, possibly due to delayed foreclosures and overly strict lending standards, the National Association of Realtors said on Tuesday.

Sales fell 2.2 percent to a seasonally adjusted annual unit rate of 4.43 million units from September's 4.53 million unit pace, the group said. Economists polled by Reuters had expected existing home sales to fall to a 4.49 million unit pace in October. U.S. stocks added to losses after the data.

NAR chief economist Lawrence Yun said the decline in sales stems from "overly strict" lending standards which are preventing qualified borrowers from getting loans and "may be partly" due to the temporary halt of foreclosures as banks work through questions about paperwork.

Sales have fallen 25.9 percent over the past year, while median prices have fallen 0.9 percent in the past year to $170,500.

Yun said the group expects sales to total about 4.8 million units for all of 2010. He expects sales to rebound to what he considers a healthy pace of around 5.1 million by 2011.

Hi Everyone

I'm back on Hainan Island.  What a culture shock.  China is so gritty compared to the US, with it's neat sidewalks and well-kept lawns. 

I've been missing Miami so much (not just the environment, but the buzz you get from REO hunting) that I had to hold myself back from buying plane tickets for my family for next week.  But logic dictates that it's best to wait another 6 weeks.  Nothing happens in the US between Thanksgiving (Nov 25) and Christmas.  And it's stupid to expect the banks to be dumping tons of new REOs on the market the day after Christmas.  They'll most likely only start selling REOs in greater numbers in February/March.

So my plan is to try to sell one or more properties here in China in the coming month, and then take the whole family to Miami around Jan 10.  This time I shall be going on a B2 visa (instead of using the visa waiver) since that's the only way you can get a Florida drivers license, and without the license you can't insure a car (I plan to buy a cheap pick-up).  Progressive (the largest insurer) will let you buy just 6 months of insurance for about $820, so long as you have a local license. 

This insurance will cover you for $10,000 in car damages and $20,000 in injuries you caused to other parties.  This is not that high, considering that if you really did cause injuries to someone else you'll probably be sued for millions.  This is why you need to put your property in an LLC, because you will be sued for the value of whatever possessions you may have (I assume this would apply even if you were driving a rental car when you caused an accident).

Even if you buy the most expensive insurance ($2,500 for 6 months) you will only be covered for 50K of injuries caused to other parties, which is a drop in the ocean if you're being sued for 1 million bucks.  According to the consultant I talked to at Progressive, there is no insurance that will cover getting sued for injuries you have caused.  I assume that if you own a property and someone (your tenant, or a contractor) gets injured on location, there is also no insurance that could cover you against a million dollar law suit.  Once again, best to go the LLC route.

Last night the latest Case Shiller data came out.  It seems prices are still falling.  In fact, prices in September fell in 18 of the 20 large cities studied.  More surprising is that the rate of the fall is increasing.  Here's the link:
http://www.reuters.com/article/idUSN3032407020101130?loomia_ow=t0:s0:a49:g43:r5:c0.050000:b39925678:z0

My prediction is that there will be further falls in 2011.  However, the amount of the decrease won't be too alarming (perhaps a total of 5%),  This is very low compared to the 30% crash between 2009 and 2010.

The only reason prices won't fall drastically is simply because prices are already very low.  Whenever I saw a good deal (an REO that was correctly priced and in a good area) there were tons of buyers sniffing around and making offers.  They all seemed like Mom and Pop buyers, not investors.  Once it becomes cheaper to buy than to rent, there'll always be enough buyers to prevent the bottom falling out of the market.

So why will prices still decrease next year?  Because the inventory of REOs on the banks' books has increased dramatically in the past 3 months (due to the Foreclosure Moratorium).  Yesterday I read on Reuters that banks have 25% more REOs on their books this November than they did in Nov 2009.  Considering that they haven't started releasing REOs back onto the market at the same rate at which houses are being foreclosed on, that inventory will still climb higher.

All things considered, 2011 should be a great year to get great discounts.