27 September 2008

One way bets... Vallejo, CA

Amidst a financial crisis of the worst kind, let's put things in perspective. For at least a decade, my fiancee's grandfather, Grampa Moe, was convinced that the "bad times" were coming. He prepared for one scenario, a repeat of the Great Depression. This required land, a house, several watercraft, 30 pressure cookers and ample stockpiles of gold and silver. In light of recent events, this seems extraordinarily prescient. If he were alive today (he got tired and frustrated waiting so long for it to happen) he would tremendously enjoy his vindication and his transformation in his family's eyes from eccentric to genius.

But history will not repeat the past because we have in our employ Chairman Ben Bernanke, the foremost scholar on the Great Depression, and possibly the most creative, trenchant, and able authority to sit on the Reserve Board since Marriner S. Eccles presided over the New Deal.

Grampa Moe prepared for the crisis in broad strokes. But eight years into a recession which has now reached its crisis phase, it is time to make some refinements to his strategy.

The gold and silver he stockpiled has trebled in value. The pressure cookers are most likely rusted. And while the house has fallen in price, its value is unchanged. If five years from now when the crisis abates and life returns to some semblance of normality, the gold and silver will fall and the value of the home will rise again.

In this situation then it seems prudent to sell the metals now while they are extremely valuable, in the hopes that everything will eventually be okay. Under no circumstances could it possibly make sense to sell the home at its extremely distressed price, because after all this is Monterey, California.

In the Dust Bowl where did everyone go? California. California, the most fertile state in our nation, the epicenter of our innovation, is gift from God which appeared to its immigrants literally on a golden platter.

With that in mind lets turn our attention to the focus of this installment of "One way bets..." Vallejo, California.

Vallejo sits at the mouth of the Sacramento river, on the border of Napa County, in the North of San Francisco Bay. It is a 45 minute ferry ride to the Ferry Building in San Francisco, surely the most pleasant commute in the entire Bay Area. It is filled with charming Craftsman-era bungalows and is a short 10 minutes away from the new 300 million dollar cancer research facility at Turou University.

It is currently in the embroiled in the largest city bankruptcy in California history and is one of the largest casualties of the sub-prime collapse with thousands of foreclosures citywide. Houses are down in many cases 70% from their peak in early 2006. With all of the foreclosures, rental rates have gone through the roof as people struggle to find adequate housing. In this climate, it is easy to find a bungalow for a hundred thousand dollars which, at a 6% rate, require monthly payments of $600. With rents averaging $750-1000, this is a steal even if you assume the house sits vacant for a few months every now and then.

Prepare to kick yourself in 15, in 30 and again in 45 years if you miss this opportunity now.

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