August 2019 – www.BeachChatter.com

New Horizons

For this issue we visit a couple who live in one of the original 55+ communities in the South Bay. The 600 homes in New Horizons were built in the early sixties. Most units have seen some remodelling, while a few have been extensively redone.

The basic units come in three configurations. The two story structures comprising the two most common, with single level ‘A’ units on the ground floor, and single level ‘B’ units upstairs. There are 237 each of the ‘A’ and ‘B’ units in that configuration.

Here an owner has installed a lift chair on the external stair of a two story building.

The two story buildings have downstairs units with essentially no stairs, and a nice patio, frequently enclosed in a wooden fence. The upstairs units have a large balcony off the living room.

New Horizon’s single story, ground level bungalows are highly sought after.

The third style is the highly sought-after bungalow with a total of 126 units. Each ground level building has three units, most in a staggered pattern to minimize shared walls.

Approximately 400 of the 600 units are identified as occupied by the owners. In many cases the official ownership record reflects the names of future heirs. Some units are occupied by seniors, but owned by investors, and we’ve found that often neighboring seniors will purchase available units for their own investment portfolio.

For this visit to New Horizons we’re talking to DeeDee and Arlo (names have been changed) who live in an upper story unit in one of the two story buildings.

Q1: How long have you lived here?
DD: “We bought here seven years ago. It was just what we were looking for. The owner had done a lot of upgrades, so we have dual pane windows & patio doors, and tile floors. A lot of things other units don’t have.“

Dining area with custom tile adjacent to kitchen.

Q2: Is it your first time living in a condominium?
DD: “We’ve both lived in an apartment before. This isn’t much different, except for involvement in the association. I was on a committee for a while, but it was too much. After I retire, I’ll get more involved … maybe.“

Wide and deep balconies offer immediately accessible outdoor space in addition to large units.

Q3: Have you made new friends here?
DD: “Lots of them! We’re friends with just about everyone in our building and the one facing us.”
AR: “It’s like a little Mayberry here. Everyone knows everyone and everything that’s going on. It’s really nice because the neighbors are very watchful. We know when there’s a stranger around, or a wild animal comes visiting.“

Q4: Have friends from your old neighborhood come to visit? What did they have to say about your new home?
DD: “We’ve had old friends come by regularly. There’ve been many family birthdays, and even super bowl parties! Everyone likes it. It’s much bigger than most condos.”

The New Horizons golf course has a gorgeous water trap!

Q5: Obviously there are things you like and some you don’t care for. What is your favorite part of living here?
DD: “I play Bunko every second Tuesday. It’s fun and I’ve met a lot of new people–mostly ladies–that way.”
AR: “I love the green. Everywhere you look there’s grass, trees, planters, and things growing. The golf course is especially nice with the lake and fountains.“
DD: “We’re not at the beach, but being upstairs we get a nice cross-breeze. We wanted to be upstairs because of the extra light coming in and the upstairs units all have attic storage.“

Custom built barbeque for al fresco dining on the grounds.

Q6: 55+ communities vary considerably in the amenities provided. What does the association provide that you like most?
AR: “We haven’t even tried everything. There’s a gym with showers, a wood shop with all kinds of tools, and a pottery shop with a kiln. There’s a pool and hot tub here, bocce ball, and a bigger pool over by the recreation center. The rec center has ping pong, pool tables, card rooms, a meeting room with a stage and audio/visual equipment. There’s even a library.“
DD: “The association cares for the owners. One of our neighbors needed a lift chair to get upstairs to the second level. The HOA was totally cooperative.”

The grounds are among the most opulent in the South Bay.

Q7: How about the things you like least. What would those be?
AR: “There are all the usual things about living with other people–the gossip, pettiness, and perpetual complainers.”
DD: “The garages are shared, and you can’t really store anything in them.”
AR: “Guests and delivery people have a hard time finding addresses. I usually have to go out to guide them in because there’s a combination of block numbers, building numbers, street addresses and unit numbers.“

Q8: What are your plans for the future?
AR: “For right now, we’re staying right here. We’ve talked about moving to Temecula, but haven’t looked into it.”
DD: “We could swap to an inexpensive house there, but we really like being close to the beach and near family and friends.“

When Is Assisted Living “In-Home Health Care?”

Last year the Centers for Medicare & Medicaid Services (CMS) expanded how it defines many of the “primarily health-related” benefits that insurers are allowed to include in their Medicare Advantage (MA) policies. Air conditioners for people with asthma, healthy groceries, rides to medical appointments and home-delivered meals are among the new benefits now being considered for coverage by insurers. More importantly, insurers are now allowed to cover non-skilled in-home care starting this year.

Assisted living providers often provide this type of care, such as helping residents with bathing and dressing. Thus, the CMS change opened up the possibility that insurance dollars could start flowing to senior housing and care companies. Analysts already envision major MA insurers buying into senior housing companies to maximize profits.

Technically, the Assisted Living facility is your home,
so “home health care” benefits should apply.

Only a handful of insurance companies are offering any new benefits in 2019. Among them, Long Beach, California-based SCAN, announced its “Returning to Home” and “Home Advantage” offerings in mid-November. SCAN was able to quickly add new supplemental home care benefits because it has covered similar services in the past

To provide these benefits, SCAN already has contracts in place with home care agencies. According to SCAN executives, it’s possible SCAN would contract directly with an independent living or assisted living company if it has caregivers on staff, and residents signed up for these new plan offerings.

It’s possible a retiree will have health care
provided by a medical organization
owned by the insurer. Would that be
considered a conflict of interest?

Both SCAN and Anthem, another major player in the MA arena, have indicated they are open to contracting with senior living providers or otherwise forging partnerships with them. We can expect a variety of differing relationships between insurers and providers as best practices are devised.

As insurance companies create their benefits packages and consider potential senior living moves, some senior living providers are looking at ways to add MA policies to the 55+ living packages they offer.

Sunrise Senior Living has a newly established plan called Sunrise Advantage which is currently offered in four states (California is not included). The Sunrise plan replaces the insurance company that normally comes in between the health provider and Medicare. Physician referrals to Sunrise are up 300% since Sunrise Advantage launched, per Sunrise executives.

Should we allow the health industry,
providers or insurers, to engage in monopoly?

Senior living providers like Sunrise, who create their own plans can tap into the new supplemental benefits as well as more well-established options. The changes promise to add bottom-line value for the senior living business, while enhancing residents’ outcomes and reducing some of their expenses.

Many Medicare Advantage plans already offer some health benefits not covered by traditional Medicare, such as eyeglasses, hearing aids, dental care and gym memberships. The new rules, developed with industry input, expands that significantly to items and services not directly considered medical treatment.

CMS said the insurers will be permitted to provide care and devices that prevent or treat illness or injuries, compensate for physical impairments, address the psychological effects of illness or injuries, or reduce emergency medical care.

The changes were adopted late in 2018, so many insurers are still designing their modifications, and many changes will come in 2020. Some health insurance experts said additional benefits could include modifications in beneficiaries’ homes, such as installing grab bars in the bathroom, or aides to help with daily activities, including dressing, eating and other personal care needs.

Even though a physician’s order or prescription is not necessary, the new benefits must be “medically appropriate” and recommended by a licensed health care provider, according to the new rules.

Recession Chatter

The New York Federal Reserve Bank shows a probability of 33% for a recession to strike in the next 12 months.

A recent Zillow survey of economists and other experts predicts a 52% chance of recession by the end of 2019 and a 73% chance of recession by the end of 2020.

Morgan Stanley economist Chetan Ahya estimates that the trade war with China and threatened increased tariffs, “could wind up in a global recession in about three quarters.”

Sounds very ominous. Of course, the fact it does sound ominous reinforces our tendency to talk about it. Then repeatedly hearing the conversation inflates the concern in our minds. Per Citigroup CEO Michael Corbat, the single biggest threat to the U.S. economy is, “Our ability to talk ourselves into the next recession.” (A Reuters article in April discussed ways in which those in the investment industry avoid using the ‘R word’ to minimize concerns on the part of investors.)

So what prompted this forecast of recession?

One of the key indicators used by many is the ‘inverted yield spread,’ also known as an “inverted yield curve.” Campbell Harvey, a Duke University finance professor first linked yield curve inversions to recessions in the mid-1980s. An inversion lasting three months has preceded the last seven recessions, per Harvey. “From the 1960s, this indicator has been reliable in terms of foretelling a recession, and also importantly, it has not given any false signals yet,” he said.

Without going into a lot of detail, a simple way to think of the inverted yield is this: Typically, a short term loan carries a lower interest rate than a long term loan. It’s logical, in that we are much better at forecasting events over a short term like three months, than we are over a long term, like 10 years. And that is exactly what changed late in March of 2019. It became cheaper to borrow for ten years, than for three months. It was the first time since mid-2007 that the yield curve had flipped.

Whether now or later, it is inevitable that a recession will come. That’s the way our economic system works. And preparing for the inevitable is simply wise. We recommend you evaluate your financial position in light of the possibilities and plan to protect your assets. If we can help with real estate information and valuation, don’t hesitate to call.

Ibuyers: Are they Worth the Cost?

iBuyers, instant Buyers, internet Buyers, investor Buyers …

Today, large online real estate service companies are repositioning themselves as investors. These services, like Opendoor, Offerpad, Zillow Offers and Redfin Now, have become known as iBuyers. With their own in-house brokerage services, they handle the entire transaction in an effort to appeal to sellers who want to sell their home with zero hassle. The process essentially eliminates agents who aren’t directly affiliated with the iBuyer companies, automatically reducing the ibuyer’s cost.

Strategically, ibuyers strive to make the initial offer somewhat close to market value. Some, like ZillowOffers, encourage sellers to request value estimates from real estate agents, to provide more assurance of the value. All will inspect the property and adjust the contract price, typically after a contract has been signed. This varies slightly from the normal sales process in that a conventional buyer will have viewed the home prior to making an offer, and incorporated the general condition of the home into the offer price.

“…an ibuyer is purely investment oriented and won’t negotiate.”

There is typically little negotiating room with ibuyers. There will be an inspection and the recommended repairs are priced out and subtracted from the initial offer on a “best and final” basis. Unlike a broker assisted sale where the buyer is emotionally involved, an ibuyer is purely investment oriented and won’t negotiate.

To the ibuyer, the ideal situation is to represent the seller and themselves. The seller is happy because it was quick and easy. The next step for the ibuyer is to make the repairs and list it for sale at an increase in price, once again trying to be the sole broker on the transaction. One could think of it as the real estate version of a vertical market. The ibuyer acts as the listing agent, the buyer, the buyers agent, the investor, and the ‘fix-n-flip’ contractor instead of having separate professionals for each step.

“It’s a sweet deal–for the ibuyer.”

It’s a sweet deal–for the ibuyer. Savings include sales commissions, much of the closing cost, and contractor profit margins. On the flip side of the ledger, the income includes “service fees” charged to the seller, usually in the 7% to 7.5% range, well above the highest real estate broker commissions. Some studies estimate that the final cost to the ibuyer is 15-20% below market value.

Clearly, sellers who use iBuyers end up netting less money, either through a below market purchase price or the higher fees compared to a traditional brokered sale. Is it worth the higher cost to avoid the hassle of making improvements, preparing the home to sell, and keeping it clean long enough to find a buyer who plans to live in the home?

“…it should not be the only option considered.”

When a home is severely outdated or dilapidated and the seller is unable to make improvements, an ibuyer may be the best option. Or, when the market is slow and it’s imperative that the home be sold promptly, an ibuyer may be a good solution. Under any circumstances, it’s certainly one more source to complete a sale. Given the size of the transaction and the cost involved, it should not be the only option considered.

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