All Forum Posts by: Kelly Sennholz

From today's news release:

For the first time in state history, the Governor has directed the State Water Resources Control Board to implement mandatory water reductions in cities and towns across California to reduce water usage by 25 percent. This savings amounts to approximately 1.5 million acre-feet of water over the next nine months, or nearly as much as is currently in Lake Oroville.

To save more water now, the order will also:

-Replace 50 million square feet of lawns throughout the state with drought tolerant landscaping in partnership with local governments;

-Direct the creation of a temporary, statewide consumer rebate program to replace old appliances with more water and energy efficient models;

-Require campuses, golf courses, cemeteries and other large landscapes to make significant cuts in water use; and

-Prohibit new homes and developments from irrigating with potable water unless water-efficient drip irrigation systems are used, and ban watering of ornamental grass on public street medians.

***

Might be an opportunity to take advantage of programs to re-do landscaping, etc

Haaaa!!!  :)

Lovely place, Matt.

Interesting discussion.

A couple of points:

1. When I got ready to sell my properties, knowing a downturn was inevitable, people were telling me I was crazy, that it was the hottest market in history and nothing would happen. But the FACTS were all there. People just didn't want to see it.

2. Bill's points about the cost of desalination are noteworthy. Can it be done? Yes. But not without having all water at possibly 3 times the cost of bottled water (just a wild guess) and huge energy and infrastructure demands. It is the cost which will drive people out.

3. Re: Colorado water. It is a VERY hot issue here and I do not think a drop of Colorado water will be sold. There are large areas of the state which are basically uninhabitable due to water issues. 

4. If businesses (read: Jobs) find that the cost of water is too prohibitive and they move out of state, that will definitely affect not only the population, but all assoc businesses.

5. My comparison with Florida was only for the purpose of showing how rapidly this can happen, rather than a slow decline. The insurance for hurricanes has been under assault for decades, but a trillion dollar hurricane, one time, could change everything. A few miles of affected beach may be quite different than miles and miles, states and states, of homes. I feel this is part of the reason Florida has not recovered more quickly. People like myself, who have lived through multiple hurricanes are well aware of the challenges. 

I'm not trying to be negative (because I am not) and I fully understand that some of this may be industry related news. But there have been many years ripe with scientific information on this, and the fall in water tables is surpassing all of the prior estimates.  Clearly, this will be in various areas around the state and not all of CA.

I also think modern people have become somewhat immune to the value of water, as for 100 years it just comes out of the pipe.

Benjamin Franklin said, "When the well is dry, we know the value of water".  

My only reason for bringing this up was to point out how a large exodus from California due to the water squeeze could definitely affect all areas of the country, due to the large population. 

A recent post on BiggerPockets indicated the imposition of a new $500 per day fine in California for using potable water for ANYTHING but regular in-house use. No one at all commented on this. 

This is a serious statement that water is scarce. $500 fine. Per day.

Headlines indicate:

Water stores in California will last only ONE YEAR.

Many properties are having collapse of earth due to usage of groundwater. This is called subsidience. ""The rates of subsidence we are seeing are about a foot per year in some areas. They are just phenomenal," said John Izbicki, a research hydrologist with the US Geological Survey." In other words, people's property is sinking into the ground, sometimes at rates of a foot a year. A FOOT a year. Think sewer line, water line, sink holes.

Businesses which use water will be increasingly stressed by increased costs and lack of availability of this key component of their business. They will be incentivized to leave CA. Protests at, I think, Hershey bottled water plant already occurred. 

Water reserves are NOW being tapped which contain rainwater which fell to earth 20,000 years ago (during a much rainier time of history) and is basically irreplaceable and being used at massive rates of depletion.

The area of main agricultural activity in our country is being affected: "The pace of depletion has jumped dramatically since 2000. And Konikow identified one area that appears to have the most serious depletion problem in the nation—California's agricultural powerhouse, the Central Valley, especially its more arid southern portion."

Here is one article:

http://www.latimes.com/opinion/op-ed/la-oe-famigli...

My questions are: 

What implications do you think this will have on real estate prices, both in CA and rest of country?

What is your estimate of lost economic strength due to high water prices?

Do you think this is a short term problem or a long term problem?

My experience, (and economic research), indicate changes like this and those which will inevitably happen on the coast of Florida, do not happen gradually, but move in a "tendency" until accelerated by an incident. For instance, if a massive hurricane hits Florida and the Feds remove hurricane insurance (which they will ultimately have to do) all of the homes along the coast will become valueless instantly due to inability to insure. Likewise, I think one incident will hit California, bringing the entire water problem to its proper significance.

Thoughts?

By the way, it was easy to see the coming housing crisis of 2008-10 with similar news stories. I sold 6 months prior to the downturn. Being able to put economic trends into global or national perspective is a massive part of being in real estate.

Yep. Miniature horses. :) 

He has a deal. He should cherish it. I have properties like that, too, but now.... unicorns. 

For those trying to buy now, 11% cap rates are unheard of. 6-8% is more typical in Denver. 

Just my two cents. Instead of spending an exorbitant amount of time evaluating properties you may never own, why not just send letters to all the properties you like? Who knows, one of them may unsuspectingly be up for sale. I like your approach because it doesn't waste time blanketing entire neighborhoods with letters, you are narrowing it down to properties you might want to own. If someone pops up with interest, you can then do the digging. 

I love John Chapman's comment. I would only add that if you are not using quickbooks or similar, you are likely wasting a lot of time. 

I follow my investments with a spread sheet, as I have clear goals and objectives and it is a great inspiration to watch them quickly manifest. I can go back a year or two and easily see my situation then, compared to now. Great fun. 

I have multiple spreadsheets for various issues, i.e. RE numbers, budgeting, net worth and projections, etc etc.

Not only makes life easy, but it is clear where my expenses lie when doing that. Many people try to shoot from the hip on that, but there is nothing like the cold hard facts to inspire change in habits.

Hope that helps!