Author: Jeff Brown (page 14 of 15)

Real Estate Investments Broker

January 23, 2007

Ask The Broker: Is There Any Diversifying Alternative To Real Estate Investing?

by Jeff Brown

Real Estate Investments Broker

Nick writes:

Hi. I often scan your site and you seem to have collected a group of savvy and knowledgeable contributors. Here’s my question for you and them: What is the opposite of real estate? I know diversification is a smart strategy and many investors limit their risk by investing in something that flourishes when their main investment founders. Is there any sector or type of investment that traditionally performs well when real estate investments do poorly?

I disagree with your foundational premise. Diversification is for those who don’t know enough about what they’re doing. They fear loss of investment capital so they ‘balance’ each part of their portfolio with something that will generally perform better if their opposite does badly.

It’s called Playing Not To Lose.

Diversification is centered on risk and its reduction. I submit that your risk is greater or lesser based upon the degree to which you absolutely know what you’re doing in real estate. Let’s take an example.

If a few years ago the investment choices in your local market were becoming less appealing, and you took the equity in your properties to Phoenix, how would your net worth look now? In 2003 in San Diego my clients were hard pressed to find units that still made sense on a month to month basis, and could be acquired with low down payments. They knew it would only get worse as prices continued to rise. (which they did of course)

They didn’t look for something to balance this move. Phoenix now is in the middle of a correction and my clients are still doing just fine. They’ve increased their net worth significantly, and later this year or early in ’08, will take their increased equity and trade some of it to yet another growth region.

The difference between those who stayed ‘safe’ in SD and those who took some or all of their SD equity to Phoenix is, in anyone’s judgment, staggering.

Knowing what you are doing reduces risk. Having generous cash reserves is what I’d recommend instead of putting a governor on your growth via diversification. I’ve included a link below which talks about Read more

January 22, 2007

Your Retirement — A Few Questions

by Jeff Brown

Real Estate Investments Broker

For those of you over 40, take a few minutes and contemplate your retirement. Here are a few tips on how to figure out more closely what it could be.

Bring into focus your current financial state. In other words, where are you now?
Recall the last time you thought about your retirement. How much income did you want to create?
Given your current age and retirement age, if you keep doing what you’re doing now, will that income be there?
Is that income, after tax, enough?
If you think you might need to modify your current approach, what would you change?
What should you do if you feel you may have to work years after your planned retirement age?
Do you know folks over 60, still working full time, and who may have to for the foreseeable future?

It’s shocking to me the number of people I know personally who are at least partcially supporting their parents, and still haven’t asked themselves those questions. The average guy in his mid-late 50’s has less than $60,000 saved for retirement — usually in a 401(k) or IRA. He doesn’t owe much on his home, and figures if he can figure out how to pay it off in the next 10 years he’ll probably be ok. Between the safety of his free and clear home, Social Security, and his savings, retirement should be just fine. That brings up one more question.

How do you feel about that?

January 16, 2007

Compounding, Return On Investment, & What Matters To Investors — Invest $1 Get $2 Back

by Jeff Brown

Real Estate Investments Broker

The miracle of compounding is what it’s called. The ability to earn interest on interest is the simplest way to put it. Start out with a hundred bucks at 8% annually and beginning the second year you’re earning 8% on $108. Keep that up for about nine years and you have $200. So if at age 30 until age 65 you put away $4,000 yearly, compounding annually at 8%, you’d end up with just under $690,000. And if it was in an IRA or 401k that money is taxable as it comes out. Of course, if for some reason you don’t need it, and wish to have it continue compounding, tough luck. Uncle Sam will force you to begin taking it out and paying taxes on it. But I digress.

What does return on investment mean? Try getting three investors together to decide the answer to that one. Is it cash flow? Do tax benefits come into the picture? Is it simply a function of money in and money out? Cash on cash? All the above? None of the above? I’ve heard all kinds of definitions.
Does it really matter?

If you invest $100k today and upon selling receive your original capital back plus another $100k in four years, do you care what your ROI is? No, you’re too busy bragging to your brother-in-law, who wouldn’t go in with you at the beginning, how you doubled your money in 48 months. Your ROI is the pained look on your sister’s face, right? 🙂 All you care about is you put $100k in, got $200k out, and you’re ready to rock ‘n roll again.

But what does it take to accomplish that? In rough numbers, if you bought $455k in income properties at 20% down, with about 2% closing costs, you’d have needed $100k to close the escrow. If for four years those properties increased in value at 7.6% each year they’d be worth in the neighborhood of $610k. (And yes, there are places where properties are going up at that rate.) If your total cost of selling was 8%, you’d have roughly doubled your money Read more

January 7, 2007

From Rotating Careers To Gold Fish Johns

by Jeff Brown

Real Estate Investments Broker

Though always searching for cool real estate blogs, once you’ve been looking for awhile the nuggets are discovered much less often. Happily I ran into one I’m sure many of you already know about. For those of you on the late bus along with me, I recommend you click over to Sacramento Real Estate Blog. John Lockwood at times shows how to take transparency to new levels.

His post promoting his newsletter is inspired. I Take It All Back speaks for itself. His transparency in the post reviewing the past year was a story I’ve seen repeated over and over. Yet, John lets us inside his head as he roams back and forth, struggling to discover just what he really wants to do.

John is smarter than the average bear, and funnier than the average blogger. Take a look, you won’t regret it. The guy is worth your time, I promise. He’s also faster than I am. Imagine my surprise to find a post, in part about a simple comment I made on his site yesterday.

Seriously, take a look at this guy.

January 5, 2007

Who Wants Ice Cream?!

by Jeff Brown

Real Estate Investments Broker

Ever ask a bunch of nine year old kids if they wanted some ice cream? Ever ask your 16 year old son if he wanted a new Mustang? Or my all time favorite — ever asked your wife if she wanted diamonds for Valentine’s Day? Did any of those questions need to be asked? Are the answers to those questions in doubt?

So I have a question for you. But before I ask it, let me tell you in advance that I’ve been surprised more than once by the answer. Unlike the three questions above, this one sometimes gets run through some pretty funky filters, leading to surprising answers. In the time I’ve been doing this for a living, I’ve learned much about how people think. And the phrase ‘you never know’ doesn’t begin to cover it. What the mind believes can so easily overpower not only reality, but can lead people to do things against their own best interest. People will believe some things in the face of overwhelming evidence to the contrary. Here’s an example.

Myth: Putting butter on a burn will ease the pain.

Reality: Immediately after receiving a burn, it is important to cool the skin in order to stop the burning process. Putting butter or other greasy ointments on a burn may actually make things worse, since the grease will slow the release of heat from the skin, allowing damage to the skin from the burn to continue. The best way to cool the skin after a burn is with coool water, not ice or ice water. An antibiotic ointment and a bandage will aid the healing process. According to doctors, leave the butter for your toast.

Most of us have heard about using butter as a burn remedy. My aunt once told me to hold a stick of butter on my fingers after a 4th of July sparkler burned them. But don’t we all know someone who would, in the face Read more

January 4, 2007

If Retirement’s Called Your ‘Golden Years’ Why Shouldn’t You Keep The Gold?

by Jeff Brown

Real Estate Investments Broker

If you’re in the state/fed combined tax bracket of 33.3% and your home mortgage is interest only at 6%, your after tax rate is 4%. But you knew that, right? And if your loan is say, $200K, then your annual interest deduction is $12k. At your 1/3 tax bracket your actual interest paid is only $8K. This means you are not paying $4k in income taxes just because you own your home. Big deal you say, everyone knows that. True enough. But is there a way to take further advantage of that tax break?

What if you’re married and you’ve been putting $4k annually in your 401k. Why do people do this? They do it because they’ve been pounded since they can remember — “you’re saving taxes on every buck you put into your 401k. Don’t be an foolish, keep doing it.” What if you took the $4k in tax savings from your home interest deduction and put it into something that might grow tax free? Why would you insist on taking an additional $4k and locking it inside a retirement plan that’s telling you up front it’s going to tax everything that comes out in retirement income? And that tax rate will probably be the same or more than what you’re paying now. And we’ll tax your heirs when both of you are gone.

“But my retirement tax bracket will be significantly lower than it is now” you reply confidently. Not so fast. Aren’t you and your wife doing your best to end up with a free and clear castle by the time you pick up your gold watch? If you guys put the same $4k in the retirement plan (401k/IRA) every year for 35 years and it grows at an average rate of 8%, you’ll have around $690K. At that same 8% you’ll have an annual income to add to your Social Security check (laughing in backround) of roughly $51,750 — pretty nice, eh? Not so fast. You’re earning too much possibly. What? Social Security may become taxable with your increased income. In any case, your retirement income is about what Read more

December 31, 2006

The S & P Is Up Over 16% In 2006!

by Jeff Brown

Real Estate Investments Broker

Over the last half century or so the S & P has averaged, give or take, about 8% growth annually. Pretty impressive. A lot of folks are very impressed, especially those who’ve invested into vehicles tied to the S & P index. They did better than ok this year, don’t you think? Twice the average for the last half century ain’t bad by anyone’s calculations. As a matter of fact let’s say the S & P annual growth rate for the five year period) averaged 10% annually, which is still 25% better than the average since Eisenhower was president. For those already retired and receiving income from investment grade insurance vehicles, many of which are tied directly to that index, 2006 has been a banner year. If you’re wondering why the grandkids made out like bandits at Christmas this year, that could very well be the answer.

For the same period of time let’s have two investors, one in the S & P, the other in real estate. They both have a hundred grand to invest. The real estate guy is at a little disadvantage though because he’ll need to hold some of his cash back as reserves. The S & P investor can afford to put his entire hundred grand into his investment.

So the real estate guy finds three duplexes for $200k apiece. (Remember, even though it’s San Diego, it’s 2001.) He puts 10% down on each one. His total investment including closing costs was about $75k. He put the remaining $25k in the bank as a cash reserve account. The duplexes all provided about $100 monthly positive cash flow, though our investor was just hoping they’d at least break even.

Note: My office structured transactions like this a few times a month back then, month in and month out.

Even though the real estate appreciation rate was three times what we’re assigning to the S & P for these five years, we’re going to limit it for this example to 10% a year for the real estate also. This results in a value of roughly $254k half way through Read more

December 29, 2006

Common Sense Office Policy

by Jeff Brown

Real Estate Investments Broker

Have you ever called an agent’s office and asked, “May I please speak with John?”, and find yourself sent directly to John’s voice mail? Does it irritate you? It is one of my pet peeves. Or how about email? How many times have you sent information by email, or a series of questions to someone during an escrow, only to have them call you with several questions which were answered in your initial message — Or answer only two of the five questions you asked.

Ever found yourself after lunch waiting for a response from an email you sent in the morning, only to find out they hadn’t even looked at their mail yet? Often these are the same people who fancy themselves as being part of a ‘hi-tech’ operation.

Faxes too have become a major headache in our business. By the time a document has done a few fax-laps it may resemble pages copied from the Red Sea scrolls. With the cost of scanners down these days to just above a case of Pepsi Vanilla, (Less that is unless you’re selling it to The Phoenix Real Estate Guy :-)) scanning signed docs for emailing makes a lot of sense. It also has saved hours of needless conversations between agents and escrow, lenders, and other agents. How many times would you have given serious money just to have a readable contract when time mattered? This is where scanning, and the use of pdf’s are simply a no-brainer.

All this can cost the agent money, and worse, clients. In the short run clients will accept the fact that others are slowing you down through poor performance. But eventually the failures of those upon whom you rely will be associated with you. And if the offender is you, your clients will not long think of you as a real pro.

I offer the solutions we’ve installed in our office. They’re surely not the only way to go, but they work for us.

With rare exception the phone will be answered before the third ring by a live voice.
If the person called is unavailable, a time for the returned Read more

December 19, 2006

Investor’s Version Of Grandpa’s Coffee Can — Diversification

by Jeff Brown

Real Estate Investments Broker

For the first time I’d like to post, almost simultaneously, (simulpost?) on a subject which has facinated me for years. My purpose is merely to introduce the subject. A meatier post will follow.

Investors have been told by Wall Street to diversify since the street signs were put up on the corner of Wall and Broad in Manhattan. On the surface it seems a more than reasonable principle. After all, the only reason for its existence is to avoid losses. And who in their right mind doesn’t want to avoid losses? Indeed.

Warren Buffett and George Soros are both multi-billionaires — due solely to their ability to invest in winners. They think diversification is for those who simply don’t know what they’re doing. This is because they define risk as the result of not knowing what you’re doing. It’s ironic that most of their investments are in businesses that haven’t diversified themselves.

Here’s what Mr. Buffett had to say to his own shareholders 13 years ago:

“The strategy we’ve adopted precludes our following standard diversification dogma. Many pundits would therefore say the strategy must be riskier than that employed by more conventional investors. We disagree. We believe that a policy of portfolio concentration may well decrease risk if it raises, as it should, both the intensity with which an investor thinks about a business and the comfort-level he must feel with its economic characteristics before buying into it.”- 1993 Chairman’s Letter to Shareholders

Mr. Soros seems to like the more direct approach:

“Diversification is for the birds.”

They both have been quoted saying:

“Risk comes from not knowing what you’re doing.”

We laugh at the thought of the coffee can full of cash buried in the backyard. But it’s not funny. The reason the old guy did that was because he simply didn’t know what else to do. He did know one thing for sure — he didn’t want to lose what he had earned so far. Fear of loss and not knowing what one is doing is what risk is all about.

Since when do fear and ignorance combine to create great investment portfolios? Mr. Buffett and Mr. Soros say Read more

December 15, 2006

How Much Is An Excellent Assistant Worth? Are You Kidding?

by Jeff Brown

Real Estate Investments Broker

My company is a two horse operation. And one of the horses has just been cleared to take on riders. Although in the past I’ve had several assistants, I’ve found that when it’s all boiled down, my business is built on the foundation of — homework. In the past my assistants were trainees on their way to becoming full time investment agents. So as soon as they became really good at being an assistant, they were allowed access to the next level. And I’d be back at square one — again.

It’s about to happen for the last time as my son has finished two years of training. He’s been my right hand, assistant, TC, ‘road guy’, and general doer of those things we’d all rather avoid. And now I have to figure out how to replace the irreplaceable. The cost to train and retain long term, an employee as effective as Josh would literally be unaffordable. How do you find someone who can solve problems, keep clients happy, snap the whip, and million other things? And on top of all that care as much as I do about the results? You probably don’t.

Enter Becky Bethke. Calling her a diamond in the rough would be damning her with faint praise. We’ve done about 20 transactions in the general Boise region in the last two quarters this year. Not a tremendous number, but enough to test the local supporting cast. I’ve gone through two escrows, two title companies, three lenders, two property inspectors, and a partridge in a pear tree. And one Transaction Coordinator. Though calling her a TC is an undeserved compliment to TC’s everywhere.

I won’t bore you with the details, but outside of delivering pizza and beer when escrows close, Becky does everything else. She calls her company The Closing Source. She calls herself a Transaction Coordinator. Trust me, she’s not a TC, not even close. My mom was an executive secretary back when that’s what they called executive assistants. In her prime she wouldn’t be a better assistant than Becky.

When we are successful in acquiring another Boise property Read more

December 8, 2006

Retirement Lifestyle: 3 Quick Peeks Into Your Future

by Jeff Brown

Real Estate Investments Broker

I just got off the phone with a delightful lady, who has been assigned the impossible task of editing my blog. She’s now reviewing what I’ve done so far, and her preliminary opinion is that I’m not inarticulate. I’ll await her final call with as little anxiety as possible.

She did pose an excellent question about what I do.

She asked, and I’m paraphrasing here big time, “What about regular folk who are just plain afraid of taking that first step in investing in real estate for their retirement? The thought makes me more than a little nervous. Don’t most people fear their first foray into that world?”

Well, yes and no. Most have concluded on their own that the plan currently in place for retirement might be lacking in foresight. However, many think that if they just keep paying down their home loans, saving money in their 401K/IRA’s, and not living beyond their means, everything will work out. This is when they need a heavy dose of “I’ll never live that way” reality. The old ‘free & clear’ home plan is one of the most dangerous myths going today for Baby Boomers. It’s a prescription for a spirit crushing existence in what should be some of the best years of their lives.

Spirit crushing? If your kids live out of town, you can’t afford to visit them very often if at all without them paying your way. Trips to tropical islands sipping exotic drinks with umbrellas in them are not on your menu. Birthday and various holiday gifts – send a card because the money simply isn’t there. It’s Valentine’s Day and you want to take her to that ‘special’ place? You just don’t have an extra $100 for that. It gnaws at your spirit.

Many of us know retired folks living that life. It’s not a ‘lifestyle’ — it’s a life sentence.

I show investors three possibilities for their retirement lifestyle.

One is the status quo plan. They end up with $50-100k in their 401k, have a Social Security check for up to roughly $2k monthly, and if they can earn say 6% Read more

December 7, 2006

You Think You Have A Handle On Russell Shaw? Bet You Don’t

by Jeff Brown

Real Estate Investments Broker

You’ve maybe met a ‘mega-producer’ or two. I’ve met my share, and in their own ways they’re all pretty impressive. Russell breaks the mold — no, he smashes the mold.

There are two things you realize after talking with Russ longer than a few minutes. He knows who he is and in what he believes. And he sports a world class mind. The subjects of our conversation were all over the map — then off the map and into another universe. The man has lead a varied life.

His laugh is a reward — and he spends it wisely. Turns out he knows funny better than most. The guy was a stand-up comedian, really. Came ‘this’ close to choosing that for a profession. I’d pay an entire commission to have seen just once how he handled hecklers. Talk about coming to a gunfight with a rubber knife. 🙂

He was on Phoenix radio for a very long time, and you can hear it in his voice. The second you hear him speak you’re jealous. How he ever got rejected on the phone is a mystery. But I also saw what I think he’s about in real estate.

He’s about doing the job, and doing it better than anyone thought possible, and more times than you and I could be persuaded to imagine possible – even for a team. His ultimate production goals have caused me to revisit my own. And I thought mine weren’t exactly burnt toast. He’s not about the money. He’s a gladiator who’s in love with the battle. And ultimately that may prove to be his winning edge. I’ve always embraced that approach — but he’s truly a purist.

On some subjects we were farther apart than Donald Duck and Darth Vader. I’d still rather debate with Russ than agree with most people I know. How many folks can you say that about?

December 7, 2006

Who ARE These Guys?

by Jeff Brown

Real Estate Investments Broker

As you may have already noticed, I took some time to visit with Greg Swann and his way cool lady, Cathleen Collins. As you can see in the picture Greg put in his earlier post on this visit, nobody will ever mistake me for Burt Reynolds. And to his credit, Greg described himself as a ‘Fred Flintstone’ type. Turns out Greg is an honest guy.

I probably had the RCA Dog look on my face most our time together. Seriously, you look at Greg, then at Cathleen, and regardless of his ‘the poet always gets the girl’ mantra, you wonder what happened. 🙂 If I were going to attach a movie title it would be Fred Flinstone Meets Cinderella. Of course, to be fair, folks who know my wife and I might say Bride Of Shrek.
I enjoyed our time together immensely. They’re brilliant, gracious, and humble. Regardless of the $100 words Greg uses when writing, he’s a regular guy who obviously found his princess. But seriously Cathleen, no poetry is that good.

I also had the pleasure of breaking bread with Russell Shaw. But that’s another story entirely.

December 4, 2006

Ask The Broker: What if my lender won’t underwrite a land lease?

by Jeff Brown

Real Estate Investments Broker

I am a buyer in a real estate transaction for a condo in California. I have been in escrow for the past 45 days but have been unable to obtain a loan due to the fact that the condo is on leased land which is due to expire in close to 30 years and the bank does not want to take the risk. There was a finance contingency. A 15 year loan would not be satisfactory to me and I may not even qualify for it. Can I cancel and get my earnest deposit back, thanks.

California says the condo is, I guess technically, not considered real estate because of the less than 30 year lease term. This may be a large exit door for you.

Although I’ve run into this problem in Hawaii with clients, never in California. A practical solution is to find out if it’s possible to have the lease extended past 30 years. That worked for me many years ago. If the land owner will do this you’ll probably be able to obtain your loan.

Otherwise, this gets into a legal judgment call. Does the contingency specifically say you’re to obtain a 30 year loan? Or did you leave that section blank? If the terms of the loan are not mentioned you are in a gray area, and might be better of consulting a real estate attorney.

In the end, this may be much like a trick question on a test in school. My first comment will probably be your out. A five minute consultation with an attorney should solve this for you, and put a smile on your face.

November 28, 2006

Win-Win: A Recent Case Study

by Jeff Brown

Real Estate Investments Broker

Win-Win is a concept that’s been popular for a few decades, especially in the real estate industry. Most of the time though it’s been talk and not much walk. Since it supposedly refers to the buyer and seller in the same transaction, many would argue it’s a cruel hoax, and in fact an oxymoronic phrase. How can the buyer and seller both win?

It can only happen when the buyer and seller agree that their goals can only be realized with each other’s help. Become a team. It must be understood that taking an adversarial position will end any chance of both sides winning. This usually happens when one or usually both sides realize the market hasn’t and probably won’t provide the same solution they can by working together. Team players on the other hand can share in total victory.

This approach is almost impossible in the sales of homes in which the buyer intends to occupy their purchase. In that situation both sides by definition want obviously different outcomes. (The Real Estate Zebra begs to differ, saying most home buyers and sellers can team up for a mutual win.) Though they eventually can come to agreement, it’s nature is almost always adversarial. Captain Obvious lives. However, in the investment world, it sometimes happens that a buyer and seller can do something for each other that the market has failed miserably to provide.

Here is such a story.

Ellen and Rosa are my clients, referrals from family. Ellen had already executed the first leg of her Plan successfully. Rosa and I had just finished creating her Plan and were ready for the first leg, which was the sale of her condo. She’d acquired it several years ago and had well over $100k in net equity. She needed as much cash as possible in order to get her Plan going. She is 50ish and knows her retirement will not be more than marginally adequate if she doesn’t change her approach now.

Ellen desparately wanted a local condo in which she could opt to live at some future time. She was now living in a duplex that allowed Read more

Author: Jeff Brown (page 14 of 15)

Ask The Broker: Is There Any Diversifying Alternative To Real Estate Investing?

by Jeff Brown

Your Retirement — A Few Questions

by Jeff Brown

Compounding, Return On Investment, & What Matters To Investors — Invest $1 Get $2 Back

by Jeff Brown

From Rotating Careers To Gold Fish Johns

by Jeff Brown

Who Wants Ice Cream?!

by Jeff Brown

If Retirement’s Called Your ‘Golden Years’ Why Shouldn’t You Keep The Gold?

by Jeff Brown

The S & P Is Up Over 16% In 2006!

by Jeff Brown

Common Sense Office Policy

by Jeff Brown

Investor’s Version Of Grandpa’s Coffee Can — Diversification

by Jeff Brown

How Much Is An Excellent Assistant Worth? Are You Kidding?

by Jeff Brown

Retirement Lifestyle: 3 Quick Peeks Into Your Future

by Jeff Brown

You Think You Have A Handle On Russell Shaw? Bet You Don’t

by Jeff Brown

Who ARE These Guys?

by Jeff Brown

Ask The Broker: What if my lender won’t underwrite a land lease?

by Jeff Brown

Win-Win: A Recent Case Study

by Jeff Brown

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