Money Blue Book

When you think of Ed McMahon, you don’t exactly associate or lump him with big time wasteful spenders like MC Hammer and some of the other well known celebrities of the past who rose to fame and fortune quickly but ultimately frittered away their money into bankruptcy on trivial pursuits. No, when you think of Ed McMahon, you think of the aging but charismatic late night show announcer, the TV personality, and the face and voice of the American Family Publishing sweepstakes team (not to be confused with the more popular Publisher’s Clearing House sweepstakes) that arrives unannounced at the homes of winners to present them their grand prize. You certainly don’t see or hear about him throwing his money away on fast cars, fast women, or holding lavish sleaze parties to great excess.

So I was quite surprised when I learned that someone like the now 80 plus year old Ed McMahon has now found himself in difficult financial straits and faced with the prospect of mortgage foreclosure on his multi million dollar home. This housing bubble and credit crisis seems to be quite merciless and universally brutal, even to those who simply lived their lives with the best intentions, but still succumbed to hard times. With little regard to feelings or reason, the mortgage credit crisis and the powerful forces of housing supply and demand have devastated many good families.

Ed McMahon and His Wife Pam Speak Out About Home Foreclosure and The Possibility Of Losing Their House

Ed McMahon recently appeared on the CNN Larry King Live show (CNN video clip) with his wife to discuss their difficult foreclosure nightmare and explain how a former multi-millionaire such as himself could fall from financial grace after all these years and have his house foreclosed on. During the conversational interview with Larry King, many of Ed’s words about how it all happened rang true:

“If you spend more money than you make, you know what happens. A couple of divorces flown in - a few things happened. You want everything to be perfect, but that combination - the economy, a little injury, breaking my neck - you just can’t work with this thing around your neck.”

“In some sense, I want to speak for the million people who now have foreclosure signs on their houses. I just want to give them hope, give them optimism and some guidance. Get the best corrective people you need around you, keep working at it, don’t stop. There’s a lot of people who are hard workers, did everything right, didn’t do anything wrong, and all of a sudden they are in this boat, and I speak for all of them as far as I’m concerned.”

“For everyone out there who’s going through this, we really sympathize with you. Be optimistic. It can be done. All kinds of things can happen. Let it work out great for you.”

When asked by Larry King to comment on the public assumption that the McMahons are multi millionaires and asked how they could have fallen behind $644,000 on their house mortgage payments, McMahon’s current wife Pam chimed in (tearfully at times):

“People do assume that you have hundreds of millions of dollars, and I think over the years it’s a combination of Ed working so hard and not looking at proper management which happens a lot. Because you’re a celebrity, people think you have a lot more than you have. And you always want to take great care of all your friends and family in all you do. We didn’t keep our eye on the ball and we made mistakes.”

“But you have to not give up. Whether we keep our house or we don’t keep our house. The whole financial issue might be the thing that ruins marriages, ruins relationships - but our marriage is strong.”

“You have got to realize that you can get through it. You never know what good things can happen for you tomorrow. Keep the faith.”

My Thoughts On Upper Class Celebrities, Ordinary Middle-Class Americans, and How To Protect Oneself From The Realities Of The Recessive Economy and Housing Market

After listening to the interview, I have to say I really started to sympathize with the plight of those in foreclosure. I know Ed McMahon and his wife Pam aren’t exactly representative of the classic foreclosure case, but at least they can relate to the pains of someone who can no longer afford his or her home mortgage loan payment and compelled to face the reality of home foreclosure. It’s an embarrassing and even humiliating experience that no one wants to be forced into. Home ownership is the American dream and when you can’t afford your pride and joy any longer, it’s a tough pill to take.

As I am currently still a happy renter and have not yet become a home owner, it is in my own personal and financial interest to see that there is no housing bailout whatsoever instituted by the government. This would obviously be the most self centered and self motivated route to take as opposition to any housing foreclosure bailout or assistance would help to ensure a growth in the glut and oversupply of available homes on the market, thereby substantially driving down real estate prices for the next 2-3 years until I decide to finally enter the housing market as a buyer.

But I do sympathize with most of the owners of the more than 1 million American homes (CNN news article) that are now shockingly finding themselves in foreclosure jeopardy. Sometimes in life, you do everything right with good intentions and yet bad things still happen when you least expect it. In Ed McMahon’s case, he may have lived an early life of entertainment and celebrity success and held to great esteem in his work, earning millions of dollars through the process, but apparently he failed to adequately plan for the future and prepare himself for inevitable financial emergencies.

The reality of home ownership life is that even those with good Fico credit scores who are able to qualify for and obtain prime fixed rate loans on their houses, bad things still may happen. Sometimes through no intentional fault of their own, people lose jobs, divorces happen, child custody battles rage on, or injuries and illnesses come up making one unable to afford one’s house anymore. With a stagnating economy in recession and plummeting real estate market prices eliminating much of the home equity built up in homes, such drastic and hard financial times can hit the best of folks. Without a proper emergency fund or savings set aside to handle such occurrences, even millionaires and celebrities, let alone ordinary people like you and I, can get hit by troublesome cash flow crunches.

The solution I think is to know and realize early on that life is inherently unpredictable and fraught with financial peril. Like the stock market, no one can accurately predict the good and the bad that will happen in the future. We can only anticipate and plan for the worst but hope for the best. While there are basic financial planning steps to take, such as investing for retirement through tax deferred vehicles like a Roth IRA account, one of the most important decisions is to save and build up an emergency fund. The amount that you will need to set aside for emergencies will vary from person to person, but it’s important to plan for emergencies. For example, my car recently broke down and I had to face a sudden and emergency $1,200 auto service repair bill to replace my vehicle’s alternator and battery to get it working again. Fortunately, I had saved enough on the side to handle such an emergency occurrence and expense.

The other important thing that we should glean from the Larry King - Ed McMahon interview is to stay optimistic and keep fighting. Never give up in despair. For those who are mired in housing foreclosure, credit card debt, or even perpetual unemployment, there is light at the end of the tunnel. Don’t forget, there are many similarly situated people out there trying to stay financially afloat just like you. Just keep plugging through and maintain the faith.

It’s unbelievable how much it costs to buy a house these days. Looking at single family home prices in my area and even those located in less appealing crime ridden neighborhoods, I am just now realizing that I may never be able to afford one in my lifetime. Well, at least not the American dream home I always imagined. Not that I ever really wanted the traditional country home with the proverbial white picket fences, but somehow I always envisioned I would be closer to this dream by my late 20’s. I always figured by this time I would already be the proud owner of a brand new single family home or at least a newly constructed townhouse. So far, due to the lack of sufficient finances to match the out of control housing prices, I have not been able to attain my goal. Is this dream becoming a fantasy I wonder?

Ever since the beginning, the great American dream of prosperity and happiness has always revolved around owning a piece of land (preferably with a house on top of it). Home ownership has always been associated with security and stability. The mere act of possessing a parcel to call your own has always symbolized the triumph of moving from the unexplainable stigma of renting to a greater plane, found only on higher rungs up the economic and social ladder. But in recent years, even those who thought they had found their American dream have seen it shatter into a nightmare of swirling foreclosures and defaulting subprime loans. For prospective future home buyers like myself, we can only hope that the correcting market will find a way to prevent the dream from fading out of our financial grasps.

The Rapid Rise In Home Prices Has Almost Put Home Ownership Out Of Reach For Many

During the housing surge in 2003, I witnessed most of my older friends snap up brand new home constructions left and right. Their newly purchased homes seemed to appreciate and grow in value at an unstoppable velocity. Homeowners at the time saw their home equity surge to staggering heights in a short period of time, and many couldn’t help but bask in the financial glow of their paper net worths. But for everyone else like me looking in from the outside, it was a difficult and demoralizing time. I thought I was missing out on the greatest boom in history.

The fact that I resided in a nice Maryland suburb of Washington D.C. known for its historically high real estate prices made it even worse. Single family starter homes in areas convenient to work easily tipped the scales at $700,000 for old homes and nearly a million dollars for newer, nicer ones. These are just your basic houses, without the frills or additions. To seek out more affordable options, I would have to move further out into the distant suburban boonies of ghetto Baltimore and deal with a 2-3 hour round trip commute to D.C. everyday - a very hard pill to swallow, and one I just could not reconcile with.

The Heavens Finally Grant Us The Housing Collapse Needed To Help Bring Normalcy and Order Back To A Real Estate Market Gone Wild

It was not until the housing bubble finally popped and released its full fury that the market has finally started to regain its senses and inch its way towards equilibrium again. For the last few years I thought the American dream of home ownership was disappearing from the reach of many ordinary middle class Americans like myself. Thankfully the dream has not disappeared, but merely faded out of sight while the housing hype and hysteria rode its doomed coaster. I am utterly relieved that housing prices have finally began to make its descent back to normalcy, to better match the steady growth of jobs and employment wages.

For too many years, housing prices were inflated by irresponsible homeowners and unscrupulous subprime mortgage companies offering easy money, sped on by the Federal Reserve’s interest rate decisions. Mortgage companies aided and abetted the creation of the housing bubble by tempting highly advertised mortgage loan offers of 1% interest rates, interest only adjustable loans, pick a payment packages, and agreeing to fund home purchases for buyers with questionable credit histories. Inflated home appraisals were also a big component of what fueled the housing bubble. For years, home appraisers were pressured by mortgage originators, real estate agents, and home sellers in tandem with borrowers alike to overvalue the homes they appraised. With the unspoken collaboration of unethical home value appraisers, real estate prices soared to unchecked levels. At least one of my friends who worked as an appraiser was cognizant of the demand to keep home price valuations artificially high. Those who failed to play ball and produce the desired numbers would lose business and commissions to another appraiser willing to churn out fraudulent home valuations. This all resulted in a real estate system that soon became broken, corrupted, and in desperate need of a good shell shocking.

While I sympathize with current homeowners who are dismayed at retreating home prices, I think in the grand scheme of things, this type of market blood letting is a must for the sake of our nation’s economy and housing future. Home prices must accurately and efficiently match the supply and demand of the market, backed by the strength of jobs and wages. Hopefully, rapidly dropping prices spurred on by an ever increasing housing inventory supply will weed out the flippers and those with subprime credit who irresponsibly bought too much home than they could reasonably afford.

My Housing Plans and Recommendations For The Future

For now I plan to rent an apartment for the foreseeable future, at least until my life takes a turn (marriage etc). I still hold on to the American dream of home ownership, but for now that dream will have to wait until market prices settle. Fallout from the credit crisis and subprime mortgage debacle will take years to sort out and run its course. But looking at the high cost of home prices today, I also know that so long as I remain single and rely solely on my own income, my dream of owning a single family house will not be possible. The American economic system was simply not designed for single middle class individuals - only through pooled resources as a married team can a couple afford a home.

But for everyone out there who is not head over heels in debt and has a good FICO credit score with a solid credit history, now is an attractive time to be a prospective home buyer. Today’s market is definitely a buyer’s market. Home prices are more reasonable now that interest rates are low again. But I think most people should still hold out. While bidding competition from investors is currently very low because there are few buyers, there are still many more significant price drops to be had. Don’t believe anything you hear from delusional housing market pundits like the National Association of Realtors.

Unless you can successfully get the home seller to accept a low ball offer that is substantially less than the listed price, I would recommend that buyers wait at least 2 more years until 2010 before they even consider buying a home (renting is not as terrible as some people seem to think). As always, don’t buy more home than your current stage in life requires and always buy within your means. The general rule of thumb is that most prospective homeowners can afford to mortgage a property worth 2 to 2.5 times their annual gross income. Obviously it’s much easier to afford a home mortgage when you are married with two income streams than it is on just one single person’s paycheck. If I had prematurely jumped into the house buying craze years ago, I would probably now be owning an upside down mortgage on an overpriced home rapidly losing its value, and struggling with mortgage payments.

For a while now I’ve had an obsession with watching house flipping reality programs on TV. That is, until the real estate market collapsed. Since then, the hype and fascination seems to have subsided a bit with the feeling that perhaps many of these shows did the public a great disservice by over glamorizing the flipping experience. By oversimplifying the renovating process and featuring only the greatly successful flips, some of these housing shows perhaps gave many the misleading impression that flipping is so easy, even a caveman can do it - prompting many to foolishly dive in without proper real estate education.

These popular house flipping shows should be regarded as entertainment only and not seen as a step by step blueprint guide to flipping projects. If you are looking to get inspired and want to become more involved in the real estate investing business, watching these shows will certainly give you a good introduction into the realm of flipping. But they won’t teach you how to properly finance your flip project or even address necessary aspects like how to obtain the appropriate construction loan or even how to properly budget for unexpected repairs. But entertaining they most certainly are.

Here Are A Few Of My Favorite Flipping and House Hunting Shows:

1) Flip This House (A&E Channel) - This show is probably the original house flipping program of recent years. Each episode tracks the purchase and renovation of a single home, listing the price of the home, renovation cost, and the expected profit from each flip. For newbie flippers, this show provides the least realistic portrayal of the amateur flipping process as the show only spotlights the trials and tribulations of experienced and professional real estate teams.

However I love the show and found it irresistibly entertaining due to the endless stream of scam and fakery controversies that have continuously plagued every season of the show. The Flip This House show and its television network are currently embroiled in at least one lawsuit involving allegations of fraud and breach of contract, as well as other well publicized rumors of flipping fabrication and scams.

The most notorious episode involved Atlanta “real estate developer” Sam Leccima and his season two housing flip scam debacle. His on the air house flipping prowesses were later exposed and discredited as shams by news investigators when it was revealed that he had duped many investors in an elaborate flipping cover up. Apparently not only did he fail to own a real estate license at the time of the show’s filming, he also never owned the houses he allegedly flipped. Much of the work shown on the show was revealed to be actually temporary and shoddy patch up jobs designed to look good on TV. Home staging presentations were faked with his own friends and family posing as potential buyers. Fake Sold signs were slapped in front of unsold homes to make his on the air flipping projects appear successful. How the A&E filming crew failed to realize what was happening as it occurred is beyond me. Very fishy indeed.

Other allegations of fakery involved the humorous and entertaining Montelongo brothers. After watching several of their episodes, I got the feeling much of the whipped up drama was being exaggerated and staged. At some point the episodes grew so ridiculously off the wall that they became asinine, such as when one of the Montelongo bros supposedly had a mental breakdown and had to visit a psychotherapist, or when the family had to sneak into a hotel with their pet dog and birds because their home was being worked on.

However, the show’s most popular real estate team was probably season one’s Trademark Properties, which featured folksy leader Richard Davis and his lovely fan favorite sidekick Ginger. However, due to contractual legal disputes, they’ve since moved over to another television network to start their own show.

2) The Real Estate Pros (TLC/Discovery Channel) - This show exclusively features Trademark Properties which left A&E after filing a lawsuit against the television network over allegations of breach of contract stemming from nonpayment claims. The characters are the same and the show revolves around the same flipping adventures of the Charleston based company.

3) Flip That House (TLC/Discovery Channel) - Unlike the other shows, Flip That House features mainly amateur singles and groups of house flippers as they work together through the process of purchasing, budgeting, renovating, and appraising. The conclusion of each show always ends with a final renovated home value estimate from a real estate agent, but the appraisal usually entails some ridiculously high projected profit that reeks of unrealistic expectations. Despite construction and budget obstacles, the flippers also always seem to come out on top.

Thankfully in the spirit of realism, some older episodes now showcase a Flip Forward feature where viewers can catch up with past flippers to see how their venture actually turned out. Oftentimes, it’s revealed that many flipper properties ultimately languished unsuccessfully on the market for months to years despite the original projected profit spin.

4) The Property Ladder (TLC/Discovery Channel) - This show is one of my best favorites, but only because I enjoy watching train wrecks of amateur flippers crashing and burning their way through the house renovation process. Most of the time I cannot believe some of the wacky approaches out there when it comes to flipping houses. The show features host Kirsten Kemp as the expert property developer who advises these bumbling fools as they strip, hammer, and spend their way into the financial hole. They never seem to listen to her but strangely frequently come out on top, to my viewing disappointment.

5) Flipping Out (Bravo TV Channel) - The show centers around the real estate flipping and personal life of Jeff Lewis, a colorful Los Angeles high-end real estate developer with an obsessive compulsive management streak. The fun part is not watching his team purchase homes and resell them for profit, but rather watching him multi-task his business deals and still keep tabs on his beloved cat “Monkey”, housekeeper, and former boyfriend and business partner Ryan. “Drama for sale” seems to be the theme of this interesting flipping show.

6) House Hunters (HGTV Channel) - With the implosion of the real estate market, there seems to be greater demand for home staging shows and programs that focus on the home buying experience. As a prospective home buyer one day, one of my favorite new shows is House Hunters, which tracks the house hunting experiences of families and couples as they visit prospective houses while verbalizing their likes and dislikes about every aspect of each home they visit. At the end of each episode, they have to decide which home they liked the best and which they would like to make a purchase offer for. It’s very educational and beneficial for me to see how others go through the home buying thought processes as they visit homes and scrutinize the pros and cons. The fun part is always trying to guess which one they’ll ultimately go for.

There’s no denying that we are in a major real estate funk right now. Housing prices have plummeted and the real estate housing successes enjoyed by many in years past are long gone, despite the blinded and self-motivated views of some. But yet, home sellers are still putting their homes up for sale and there are still buyers roaming the streets looking to snap up their future homes. If you are a seller, here are some reasons why your home may not be selling well, and some things you should look at to ensure you are truly maximizing your home’s value and chances. Some factors like broad housing conditions are beyond your control, but others you can personally change to improve your selling advantage.

1) Your Home Asking Price May Be Set Too High

As much as you’d like to think that you or your real agent determine the market value of your home, at the end of the day, it’s the market and the buyer that set the price. They determine how much your home is worth and how much they are willing to pay for it. Overpricing your home is the number one reason why homes don’t sell. Much of the interest in a home is generated within the first 30 days it is placed for sale. By overinflating your asking price, you price out many prospective buyers, particularly if they feel you have no intention of budging or negotiating lower.

Remember to price your house similarly enough with the other comparables in your market as you are competing with these other houses. You want to generate buzz - so pricing it slightly below market may help generate sufficient interest to encourage higher bids later on. Houses that sit too long on the market tend to turn off potential buyers and make them wonder if there are other hidden reasons why the house isn’t selling.

2) The Real Estate Market Is Very Slow And Conditions For Selling Are Bad

When the housing market is slow, there is usually an overabundance of housing supply with too many sellers and not enough serious prospective buyers. The real estate market tends to operate in local pockets, but frequently the national housing sentiment can put a drag on valuation and drag down prices. In such a slow bear housing market, the only way to sell your home fast is to price it at a slight discount and sell it at a lower asking price. Buyers during a slow market want bargains or seller concessions such as waived fees, upgrades, or freebies like plasma TV’s. However, if you are simply unwilling to drop prices, one ultimate solution is to wait it out, although that can last months or even years.

3) Your Home Is Located In a Poor Location

When it comes to selling your home, price and location go hand in hand. Homes located in low crime safe neighborhoods, with easy access to public transportation and highways, proximity to job abundant city hubs, and located near good schools will always be easier to sell. Particularly in a slow housing market, homes located in comparatively less convenient and attractive neighborhoods will find stiffer competition from better located houses. Your recourse is to try lowering the home price further to match the market perception, or to spend more money on additional home improvements to make it more attractive.

4) Your Home Isn’t Maximizing Its First Impression Through Curb Appeal and Home Staging

First impressions are important as buyers need to be wowed and be able to imagine themselves living in the house they are looking at. Try putting yourself in the perspective of a potential buyer and dress up your home accordingly. Repainting your home is the easiest, most cost efficient way to get the most bang for your buck. A new fresh coat of paint does wonders to improve the interior of any home. Putting out new carpet, cutting the grass, and trimming the hedges are also very impactful ways to maximize curb appeal.

Your objective should be to make your house look like a model home - filled with pleasant furniture but not actually lived in. It’s best if you aren’t living in your home while it is being shown to the public if you can help it. But if you must, be sure to hide and clean up all trash containers, random boxers, and junk clutter. Keep your beds made and all dishes washed. Keep your lights on and stock your home with fresh cut flowers to enhance its appeal and impression.

5) Your Home Is Not Easily Accessible Or Convenient Enough For Agents And Buyers

To maximize the speed and price of your home sale, you want as many agents in the area to show the home off to their clients as possible. Thus you want to make it easy and convenient for them to do that. Make sure your home entrance is equipped with a real estate lock box that holds your house key for agents and prospective buyers to use. Try not to make agents have to call you for permission to enter as that only creates delays and hassles, and makes them turn elsewhere.

The best thing you can do is not to be around when your home is being shown. If you are home, let the prospective buyers and agents in but take yourself out of the picture by staying out of their way - I suggest staying in one room. Let them roam freely on their own but make it known you are available later on for questions. Your hovering presence in your own home only crowds it, making the home seem smaller to buyers. Being around will only make your prospective buyers feel like they are intruders - instead you want them to freely envision themselves one day living in the home. Besides, if you are tagging along with the buyer and the agent, they will feel uncomfortable and unable to talk freely among themselves. Even if they don’t exactly know their way around your house, let them wander on their own.

6) Your Real Estate Agent Isn’t Doing A Good Job Of Marketing Your Home For Sale

These days, selling a home goes beyond simply having your agent place your home in the local Multiple Listing Service (MLS). If your agent isn’t actively going out there promoting and marketing your home through networking with other agents, or posting advertisements in newspapers and on the web, then she or he isn’t doing a good particularly good job for you. Today the internet is a great source of marketing as many computer tech savvy agents use housing newsletters to promote their properties.

A real estate agent is essentially a sales job that requires an appearance that conveys a pleasant, honest, and responsible demeanor. Make sure your selected agent has these positive qualities and is attentive to your needs and isn’t abrasive or constantly feeding you with erroneous advice when it comes to pricing your home. If all your real estate agent does is stick a For Sale sign on your front lawn, while that might have worked years ago when the housing market was burning hot, that’s a clear indicator today that you might want to find a more pro-active real estate agent.