In This Episode:

• The Decline in 401(k) Balances:
  • The number of 401(k) millionaires has decreased dramatically, with some areas seeing over a 50% drop.
  • How the stock market, mutual funds, and bond holdings have influenced these changes.
• The Wealth Effect and Its Role in a Recession:
  • The relationship between declining 401(k) balances and real estate equity.
  • How these factors impact consumer confidence and spending behavior.
• Can a Million Dollars in Your 401(k) Last Through Retirement?
  • Breaking down the math:
    • If you withdraw $100,000 annually, a $1 million 401(k) will last 10 years.
    • Challenges if you plan to retire by age 60 or 65.
  • Factors to consider:
    • Increased discretionary spending during retirement.
    • The impact of inflation doubling prices in 7-10 years.
    • Rising healthcare costs as a significant expense.
• Key Questions for Listeners:
  • Does your 401(k) give you confidence in your retirement plans?
  • How has your 401(k) balance changed recently?
  • Have you had to withdraw funds for emergencies?

Join the Conversation:

• Share your thoughts on the current state of 401(k)s.
• Drop a comment about your retirement strategy—are you still investing, or have you adjusted your approach?

Tune in now and plan for the future!

In this episode, we discuss:

• The Basics of a 401K:
  • A historically popular method for retirement savings.
  • Many companies offer matching contributions, effectively boosting your savings (e.g., if you contribute $5,000, they match it with $5,000—like getting a raise!).
• Tax Benefits of a 401K:
  • Contributions are pre-tax, lowering your taxable income.
  • Example: If you earn $100,000 and contribute $10,000, you'll only pay income tax on $90,000 that year.
• Potential Ramifications to Consider:
  • Inflation and the likelihood of higher future tax rates could impact the benefits of 401K savings.
  • Government budget deficits may lead to increased taxes or fewer deductions in the future.
• Tax Implications Over Time:
  • Hypothetical scenario:
    • You contribute $10,000 today at a 20% tax rate, avoiding $2,000 in taxes.
    • In 10 years, your $10,000 grows to $20,000.
    • If the tax rate rises to 30%, you’d pay $6,000 in taxes when withdrawing, effectively costing you $4,000 more than if you paid the tax upfront.
• Employer Matching Contributions:
  • Employer matches may offset some of the tax disadvantages.
  • Calculate your employer’s match value as part of your overall decision.
• Key Takeaway:
  • Run the numbers for your specific situation.
  • Consider:
    • Future tax rates.
    • Employer matching contributions.
    • The potential growth of your investment.
  • Make an informed decision that aligns with your financial goals.

Tune in to hear the full breakdown and learn how to assess whether a 401K is the right retirement savings vehicle for you!

If you're working on any building project, large or small, and having trouble getting contractors to respond, this episode will help you increase the likelihood of securing a contractor for your project. Here are five essential things you can do to get a better response:

• Understand the Problem:
  Contractors are struggling with labor shortages, making them selective about which jobs they take on. They often have more work than they can handle, so it's not always about the money but the type of job they’re willing to take on.
  Tip: Be the most desirable job for them, not necessarily the most expensive.
• Put Yourself in the Contractor’s Shoes:
  Contractors may not have the skilled workers to do highly detailed or artistic jobs. For example, if you’re building a fence, a simpler design might make you more appealing to a contractor who doesn’t have the workforce for highly precise work.
  Tip: Keep the design simpler and avoid demanding perfection.
• Eliminate Bureaucratic Hurdles:
  Contractors don’t want to deal with too many details or red tape.
  Tip: Have your designs and requirements as clear as possible before reaching out. Be organized and flexible, and show that you’re open to suggestions while still having a clear idea of what you want.
• Provide a Written Checklist:
  Contractors appreciate having a clear understanding of what you want.
  Tip: Type up a checklist of what you’re looking for in terms of materials, specifications, and square footage. Provide this to the contractor to give them a better idea of the project. A simple drawn map or sketch can also help clarify your expectations.
• Prepare the Job Site:
  Contractors will judge the job site as much as they judge the project itself. A cluttered or difficult-to-navigate site can discourage them from taking the job.
  Tip: Clean up the job site by removing debris, mowing the lawn, and ensuring good access for equipment.
• Set a Realistic Timeline:
  Be careful with your timeline expectations.
  Tip: Instead of saying you don’t care when the job is completed or setting an unrealistic hard deadline, tell the contractor that the sooner it’s done, the better, but there's no strict deadline. This shows you're serious but not pressuring them.
• Select the Right Contractor:
  Don't just pick the first contractor that responds.
  Tip: Research potential contractors by reviewing their recent work, job sites, and equipment. Be knowledgeable about their business, and show genuine interest in their work. This helps build a collaborative relationship.

By following these five strategies, you can increase the odds of getting a response from the right contractor, and possibly even secure a better price for your project.

Can Mediation Be Used for Small Claims Lawsuits?

• Many people associate mediation with large commercial disputes, litigation, or divorce cases, but it can also be used for small claims cases.
• Some courts even require mediation before taking a small claims case to court.

Why Mediation Works for Small Claims

• Small claims cases are often more straightforward than large litigation cases.
• Examples of small claims include a damaged lawnmower, a car crash, or unpaid debts.
• Unlike complex litigation, the facts in small claims cases are simpler, making them more amenable to mediation.

The Role of a Mediator vs. a Judge

• A mediator is not a judge and cannot make binding decisions.
• However, mediators can highlight areas where both parties agree, potentially resolving 90% of the dispute.
• This allows for an agreement on a small portion of the case, avoiding the need for a court battle.

Why You Should Consider Mediation

• Mediation allows you to stay in control of your case.
• Unlike going to court, where a judge has the final say, mediation offers the possibility of a resolution that both parties can agree to.
• Mediation can save time, attorney fees, and court costs, making it a cost-effective option.

Can Mediation Work Even If One Party Doesn't Agree?

• Yes, you can still pursue mediation even if the other party doesn't want to participate. A mediator may help guide the process to a resolution, even without full cooperation from both sides.

Important Consideration: Mediators Don't Give Legal Advice

• While mediators can't offer legal advice, they can assist in resolving disputes before they escalate to court, helping both parties reach a resolution on their own terms.

Why Stay Out of Court?

• Once you go to court, you lose control of the outcome.
• Mediation provides an opportunity to resolve disputes without handing over control to a judge.

Key Topic: Home prices are high not because of interest rates, corporate greed, or other common explanations, but because there is a shortage of homes in the U.S.

Housing Shortage:

• Millions of housing units are needed to meet demand.
• The shortage is mainly due to restrictive permitting policies in many cities.
• In some cities, permit fees and regulatory requirements can add $300,000–$400,000 to the cost of building a new home.

California's Example:

• In California, permitting issues are a major reason behind the affordability problem.
• The state failed to build enough homes during the 60s and 70s. During the last housing boom, only 100,000 homes were built, far below the demand.

The Housing Deficit:

• Estimates of the housing shortage range from 4 to 7 million homes, with some suggesting as many as 35 million homes are needed.
• The deficit continues to grow because the rate of new housing construction doesn’t match the increasing demand from population growth, college graduates, and immigration.

The Impact of the Housing Slowdown:

• The current housing slowdown and higher interest rates are causing builders to reduce the number of homes they build.
• In 2023 and 2024, fewer homes will be built in California due to the high costs of impact fees and lengthy permit approval processes.

Cost of Permitting:

• In California, permit fees for a typical single-family house range from $200,000 to $250,000 and can take 2 to 3 years to secure, adding additional carrying costs.

Conclusion:

• The high price of homes is primarily due to supply and demand—there simply aren’t enough homes to go around, creating competition and driving prices up.
• Even with higher interest rates, there are still enough buyers with the income to afford higher prices, leaving many still without homes.

Overview:

• The idea of repurposing office buildings into residential units emerged as a possible solution to the housing crisis, especially as the pandemic left office spaces empty.
• Predictions were made that this could help ease the housing shortage, but it hasn't happened. Here's why:

Key Factors Preventing the Conversion:

• Deep Floor Plans:
  1. Commercial office buildings are often designed with deep floor plans, which don’t allow for necessary daylight or egress windows required by residential codes.
  2. Many residential areas require units to have windows for natural light and ventilation, which is difficult in these deep, internal spaces.
  3. Dividing these spaces into smaller residential units often blocks access to windows, making the conversion impractical.
• Patchwork Abandonment of Office Spaces:
  1. Office buildings don't often become completely empty all at once. Instead, companies vacate parts of the building, leaving others still in use.
  2. This patchwork abandonment makes it difficult to fully convert a building to residential use, as you either need to convert the whole building or none of it.
• Challenges with Utilities and Infrastructure:
  1. Commercial buildings are set up to handle centralized heating, cooling, plumbing, and electrical systems for large tenants.
  2. Converting them to residential units means installing separate systems for each unit, including new plumbing, electrical meters, and heating/cooling units.
  3. This infrastructure work can be costly and complicated, often exceeding the potential returns from renting out the space as residential units.

Conclusion:

• While the idea of converting office buildings into housing sounded appealing, the reality is much more complex.
• Factors like building design, incomplete abandonment, and the need for new infrastructure make such conversions costly and impractical.
• The dream of solving the housing crisis with these conversions isn't likely to become a widespread solution.

Interest Rates:

• Interest rates have spiked to 6-8%
• Home prices have risen, making affordability a challenge for many buyers
• Supply chain issues have caused higher costs for building materials like paint and lumber

Builders' Response:

• Builders are putting the brakes on new single-family home construction
• Concerns about not being able to sell homes at current prices due to high interest rates
• Increased cancellations of existing contracts have further impacted builders' confidence

Impact on Home Buyers:

• Fewer homes being built may seem like a good thing for buyers, but it won’t necessarily lead to lower prices
• Builders' costs remain high, and fewer new homes on the market may not result in better deals for buyers
• Resale home sellers are unlikely to offer significant price reductions

Future Outlook:

• Expect fewer homes for sale in 2023 and beyond, extending into 2024 and 2025
• Interest rates are not likely to decrease anytime soon, with prime rates expected to rise, pushing mortgage rates to 8-9%
• The housing shortage will worsen as fewer new homes are built

Current Housing Market:

• Despite more homes being for sale in 2022 than in 2020, there is still a shortage of quality homes for buyers
• Many homes for sale require significant repairs or are in undesirable locations
• Homeowners with low mortgage rates are holding onto their properties, limiting available inventory

Conclusion:

• Reduced construction of new homes is a negative development for the housing market, as it will keep prices high, even with high interest rates

Engagement:

• Share your thoughts in the comments!

Episode Highlights:

• A few weeks ago, we discussed the housing crisis and how permitting challenges slow down new construction in many markets.
• San Francisco's permitting process is particularly notorious, with a local newspaper investigating and confirming that it indeed "takes forever to build anything."
• Key findings from the investigation:
  • Average time for multi-family development permits: 627 days.
  • Average time for single-family or duplex permits: 861 days (2.5 years).
  • These timelines exclude the initial planning and entitlement process.
• The permitting process in San Francisco has become an entire industry, requiring consultants and expeditors that only wealthier developers can afford.
• The timeline for obtaining permits has increased by 83% since 2012, despite advancements in technology and automation.
• This extended permitting process significantly raises the costs of construction due to:
  • Property taxes, insurance, and interest during the waiting period.
  • Overhead and carrying costs for developers.
• As a result, luxury housing becomes the primary focus, not due to greed, but because entry-level or affordable housing is unprofitable under these conditions.
• The paper reported that in the last decade, 270 projects in San Francisco took more than four years to gain approval.

Discussion Points:

• Is permitting challenging where you’re located?
• Have you noticed improvements or setbacks in the streamlining process?
• How do these delays affect the affordability and availability of housing in your area?

Tune in to explore the impact of permitting inefficiencies on the housing market and share your thoughts!