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Category: Investment (page 12 of 20)

August 6, 2007

Wagging the dog at the Carnival of Real Estate

by

Suburban Phoenix Real Estate Broker

Author website

Our policy is that Cathleen Collins chooses our nominees for real estate carnivals. I trust her to be objective, particularly about my posts. The contributors are polled for nominations on Saturday night, with their suggestions going to Cathy. Sometimes I overrule her, and sometimes she asks me to cover for her.

This week, Cathy got her short list down to four posts, one each by Morgan Brown, Kris Berg, Brian Brady and me, but she didn’t want to choose from there. She threw it over to me — heavy hangs the head.

I checked and saw that nine of our fifteen contributors had written in the past week. So I entered everything of moment from each of us. That’s a violation of the Carnival of Real Estate rules, but this is my attitude: If we’re going to lose anyway, let’s lose our own way.

These were the posts that I entered, starting with Cathy’s short list:

Morgan Brown:

Kris Berg:

Brian Brady:

Greg Swann:

Michael Cook:

August 4, 2007

Expect a Market Slowdown: A quick thought piece for the more financially minded…

by

Real Estate Investor

Author website

Buyers and sellers should be aware of a general economic slow down in all markets. Everyone will feel the effect of the leverage finance and subprime markets. Since I have been writing about the subprime markets for quite some time, I will focus briefly on the effects of the decline in the leverage finance market.

Leverage finance typically covers loans banks and other financial institutions lend to corporations or large private buyers. Companies like Blackstone use the leverage finance market to buyout companies and REITs. Over the past few years there has been a significant up-tick in Mergers & Acquisitions, leading to strong economic growth. As finance markets close (or shrink significantly) businesses will be less able to get large loans at favorable rates. As buyouts and mergers shrink, expect a dip in the equity markets. Looking at the Dow over the past week bears this out.

Very few people beyond the financial community pay attention to the leverage finance markets. These markets significantly impact the large commercial real estate market. When financing tightens at the top, the price effects trickle down. This could mean a significant negative impact on the commercial real estate market is coming.

All of this will create a drag on the economy, which will serve to slow down most, if not all, real estate markets. Unfortunately this could force even more defaults, putting many real estate markets in quite a tailspin. Buyers with excellent credit that can afford to wait six months to a year to buy will have their pick in most minor markets and increased negotiating leverage in major markets.

August 4, 2007

Can I Still Get a Mortgage in Today’s Lending Markets? With Cold Hard Cash and Great Credit, Certainly; Otherwise…

by

Real Estate Investor

Author website

On Friday, August 3rd American Home Mortgage officially closed its doors. That same week Standard & Poor’s cut its outlook on Bear Stearns from stable to negative amid fears of firm wide exposure to subprime lending and the leverage finance market. If all that were not bad enough, the leveraged financed market has essentially shut down. The questions on everyone’s mind are: What is next, how will this affect the housing market, and will loans be available in the near future?

To start on a positive note, yes, there will be plenty of loans available in the near future. Unfortunately these loans will only be available to borrowers with good to excellent credit, who have a reasonable down payment (5-10%). Mortgage lenders and banks have gone beyond scared to downright petrified because they can only see the tip of the iceberg. For the readers out there who are not familiar with icebergs, typically everything above the surface (what one could see) represents 10% of the total mass of the iceberg.

Continuing with that analogy, most analysts expect this situation to get significantly worse before it gets better. While Bear Stearns and American Home Mortgage have been the latest news whipping boy, the market has quietly downgraded many (if not all) banks and mortgage lenders. Furthermore, banks know exactly what they are holding, whether they admit it or not. To soften the final blow, expect them to raise rates, charge higher fees, and tighten their approval process. Even though many financial institutions are being very hush-hush about how much of the bag they are holding, they are diligently working to limit any future exposure.

For a borrower that means anything outside of plain vanilla conforming loans will be very hard to come by. But we here at Bloodhound would be remiss if we only gave readers the gloom and doom story. Despite all of this, here are some suggestions that might help ease some of the burden for those currently looking for financing.

Get a GREAT Mortgage Broker

While this could be my Bloodhound tag line, this is the time where it will pay dividends. Many lenders Read more

August 3, 2007

Ask the Broker- Did I Invest in a Sub-Prime Mortgage?

by

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

Scott asks:

How can you tell if you have a sub-prime mortgage bond in a portfolio?

Scott, I’m taking a stab at this. I haven’t sold securities in 14 years. Mortgage-backed securities, in the early 90s, were mostly Ginnie Mae pass-through certificates or Agency-issued pass-throughs and collateralized mortgage obligations (CMOs). There were a few CMOs, issued by non-agency issuers, that may have contained a non-prime loan or two to “juice the yield”. Collateralized Debt Obligations, generally devoid of whole loan mortgages, may have been infiltrated these past few years.

How about this, Scott? I can’t say IF you have a sub prime loan in your portfolio. I can say that sub prime loans won’t be collateralizing GNMA, FNMA, or FHLMC issues. If you own an instrument comprised of primarily these issues, you should be in the clear.

Michael, your more current knowledge and experience might be more precise.

August 2, 2007

Inman Connect Grand Poobahthon: Stinton: ‘Freedom stinks worse than banks in real estate’; Singer: ‘The only trouble with the MLS is the MLS — and the agents’; Barton: ‘I have visions of gesticulating green-grocers, so that must be good for real estate’

by

Suburban Phoenix Real Estate Broker

Author website

I can’t think of any argument against oral presentations better than the stuff that comes out of the mouths of the people making them.

From InmanBlog, NAR CEO Dale Stinton says:

“If there ever was a case study for banks staying out of real estate it’s the subprime market.” He also said that the subprime situation is an example of the “inevitability of an open society,” “of going too far, too fast,” and “of liquidity in the marketplaces.”

See, it was the lenders who caused these problems, not the sacrosanct tax giveaways to homeowners and real estate investors. And god spare us all from an “an open society” (that is to say, not a police state) and “liquidity in the marketplaces” (money, that is). I’m thinking Stinton had to borrow extra feet from Glenn Kelman to put in his mouth.

Joel Singer, “president of real estate business services for the California Association of Realtors,” was not to be outdone:

“The brokerage industry to a large degree has ceded too much power to the agents. Once you have entrenched power … more importantly, once you have entrenched economic power — the economics are that the MLSs actually have more funding than the organized real estate itself — it becomes very difficult to overcome that.”

I think that says that the obstacle to MLS reform is posed by the MLS systems themselves, which leads me to expect a radical legislative intervention. If you’re a real estate licensee but not an brokerage owner or designated broker, hide your wallet.

But: The prize would seem to go to Zillow.com founder Rich Barton, who summoned forth this vision:

“I see an old-style marketplace formed, a city market like Pike Place Market. I actually dug up an old photo — Pike Place Market at the turn of the last century. People were gesticulating. People were buying things. People were gossiping. Negotiations were happening. Big billboards were advertising things above the marketplace. That’s the picture I have in my head.”

I think this is meant to be poetry — except poetry rhymes, scans and makes sense.

I’m sure Stinton is not an actual Commissar, despite his derision of Read more

July 27, 2007

A peek into the inverted world of venture capital: “Business plans are overrated, and profits perhaps even more so”

by

Suburban Phoenix Real Estate Broker

Author website

Infections Greed:

VCs are professional nit-pickers. Give them something to find fault with, and they’ll do it with abandon. I generally tell people to come to pitch meetings with less information rather than more. Sure, you’ll get pressed for more, but finesse it. Presenting a full and detailed plan is, nine times out of ten, a path to a “No” — or at least more time-consuming than having said less.

Profits are a different issue. Being profitable too soon gives investors, rightly or wrongly, an idea of what the margins are on the business, as opposed to what they could be in some perfect world. As a result, it takes a mighty force for them to not start wading in with discounted present value worksheets, and the like, thus hammering your valuation and generally making funding much more complicated (and equity consuming) than if you were wildly unprofitable.

How could a story like this not have a happy ending?

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July 24, 2007

A Realtor’s Guide to Creating A Market Through Lease Options

by

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

Realtors can increase business by solving problems. This twenty minute presentation is a recording of the lease option webinar I hosted on Meet Brian Brady, my webinar site.

We teach Realtors how to use lease option financing as an alternatve financing method. Of course, we didn’t invent this simple idea. We stole it from here and perfected it here, back in the late 1990s.

July 23, 2007

Real Estate Investing vs. Stock Market Investing- Is there a Clear Winner?

by

Real Estate Investor

Author website

Real estate enthusiasts have been sounding their trumpet during the latest run in the real estate market. Many real estate focused investors truly believe real estate outperforms every other investment by a wide margin and even go as far as to wonder why investors would choose any other investment vehicle. Our own Jeff Brown even took quite a swing at the stock market in his post, My 4% will Beat Your 10 Any Day — Stocks vs. Real Estate. In the other corner stock market aficionados contend that in the long run stock market returns dominate. As an investor in both I am here to definitively say neither dominates.

Starting with the facts: Long run real estate investment returns average about 3%. This is simply a year over year long run appreciation average (cnn.com report data), while the average long run stock market return hovers around 10%. It is important to note that anyone can point to specific year, or even five year, period that one asset class has outperformed the other. This is not relevant because long term investing is the focus of this discussion.

Many stock market champions simply stop their analysis right there. That is wrong, plain and simple. Of course, as the analysis goes deeper, the water gets muddier and muddier. The starting point is leverage. Very few investors pay 100% of the purchase price when they buy an investment property. At most an investor will put the standard 20% down in a direct commercial real estate investment. This means that an investor could buy 5 times value of an investment. For example, if an investor has $100,000 to invest, they could buy $100,000 worth of stocks or $500,000 worth of real estate. Using some simple math, after 1 year the stocks would be worth $110,000, while the real estate investment would be worth $115,000 ($100,000 + $500,000 x .03).

Unfortunately many real estate investors stop their analysis here. This is also incorrect. Not only is it unfair to compare a leveraged real estate investment to an investment in the stock market that is not leveraged, but there are a Read more

July 19, 2007

In Down Markets Realtors on Both Sides of the Transaction Need to Step Up for Their Clients

by

Real Estate Investor

Author website

As the real estate market begins its tailspin, home buyers and sellers alike need to figure out how to play the real estate game. The time has passed for simply taking the lowest cost provider of real estate services. Realtors on both sides of the transaction must now prove their worth. In a down market, which many buyers and sellers now face, market knowledge and savvy negotiating skills champion the day.

The Sell Side

The most obvious need for good representation is on the sell side of real estate transactions. Realtors, who simply look at the MLS and price a home at the market average, will become serious liabilities to their clients. There is nothing worse for a seller than trailing a market decline.

When listing a home, there should not be a time where sellers are forced to reduce their price. This suggests either the seller had their sights set too high or that the real estate agent in charge of the listing was out of touch with the market. Regardless of the situation, every month a home stays on the market cost the seller pays holding costs. This could be additional mortgage payments, lower market demand, or simply the hassle of postponing moving plans.

Furthermore, in a declining market a faster sell means experiencing less of a price decline and a higher long run purchase price. When my wife and I wanted to exit our Detroit properties, we looked at the market and priced our house about 2.5% below the market average. This strategy was important because our house looked better than the market average. Initially, it looked like we could have gotten more, but it was clear that the market was declining fast. Even with our reduced price, our home languished on the market for almost two months. Luckily, we were able to get very close to our asking price when our first (and only) offer came in.

The flip side of that story is the numerous houses that stayed on the market for years! This is no exaggeration. There were houses that were still on the market a full two years Read more

July 15, 2007

Missed Fortune and the Wall Street Journal: The Value of a 50 Cent Financial Planner Is…About a Half a Buck

by

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

One of the tenets of financial advisory is the principle of fiduciary responsibility. Today, Wall Street Journal reporter, Jonathan Clements, openly criticizes the strategy Doug Andrew outlines in his best-selling book, Missed Fortune. Mr. Clements’ article, When the “Self” in Self-Interest Isn’t You, attacks the strategy as being completely self-serving for the financial advisers who recommend it.

The author is trapped in the mindset I call “Boomer Economics“: paying down the home and socking away as much as possible in employer-sponsored, qualified retirement plans. The problem with Boomer Economic Thinking is that it is becoming dangerous. The economy dramatically changed on September 12, 2001. We saw a shift of wealth from financial assets to hard assets, hyper-fueled by leverage.

Doug Andrew advises people to redirect monthly contributions for retirement. He advises that they fund a 401-k plan only to reap the benefit of employer matching. He advises that the remaining monthly contribution be earmarked for variable universal life insurance contracts so that the withdrawal from those assets is tax-free. Mr. Clements suggests that this advice comes from “unscrupulous advisers”.

Equity harvesting is another principle promoted in Missed Fortune. It is recommended because home equity fails the litmus test of sound investing. It is illiquid, volatile, and it has absolutely no return. Equity harvesting protects property owners from volatility. Kris Berg describes the challenges experienced Realtors face with panic selling, induced by illiquid property owners and inexperienced sellers’ agents. An equity harvesting strategy, invested in a side bucket to provide liquidity, can mitigate that risk. Mr. Clements directly attacks that principle as being a fee-driven recommendation and misapplies a disclosure offered by the NASD in 2004.

It is a brave new world with extraordinary challenges for the under-60 population. The World War Two generation was able to rely on the paternalistic retirement plans offered by the government and growing corporate America (Social Security and defined benefit pension plans). The Boomer generation presented the government with a distinct threat to those plans. The government answered with a tax-banking Read more

July 10, 2007

A Real Estate Recovery in Early 2008, Don’t Be So Sure…

by

Real Estate Investor

Author website

Chicken Little made the famous quote, “The sky is falling, the sky is falling.” Would he have been more believable if he had said the sky is falling, but I expect it to ease down slowly and rebound early in 2008? This is exactly what many real estate professionals have been doing for the past six months.

Here are just a couple examples:

Bob Toll of Toll Brothers, one of the nation’s largest home builders reports to CNN,

I don’t see the market getting better until, at the earliest, April of 2008. But I do think that when a recovery occurs, it will be much quicker than it has in the past because of pent-up demand. You’ve got decent job growth, low unemployment, low interest rates, great corporate earnings reports and tons of money being created and sloshing around the world.

Why April? Why 2008? Since Bob Toll, like myself is a Cornell graduate, I have to give him the benefit of the doubt. I will assume he has concrete data for this projection, but I really have to wonder if he is looking at the big picture. Access to capital has reversed course significantly and has now become a major stumbling block for many would be home buyers. Additionally, Congress is considering adding more rules and regulation to the banking arena, which will inevitably make lending tougher. On the other side of the equation, supply is hitting an all time high. Not only have many of the home builders over built, but adding foreclosures, and longer than average time on the market for regular stock really makes the picture look grim for sellers. It will be very hard for this equation to right itself in less than a year.

Richard DeKaser, chief economist at National City Corp. in Cleveland, writes at Bloomberg.com,

We’ll hit bottom in 2007 in terms of sales, but we’ll continue to see price declines into 2008. Prices tend to weaken for about six months after inventory normalizes, and we probably won’t see that begin to happen until the end of this year.

While Richard shows a bit more pessimism than Toll, he too Read more

July 7, 2007

More construction photos from Las Vegas

by

Suburban Phoenix Real Estate Broker

Author website

We did more in Las Vegas than tour construction sites, but you’d never know it from the snapshots. Here are some more projects in the works — nothing like all there are to be explored.


This is a view across the Bellagio to the CityCenter site. In the middle foreground is the old Jockey Club, being remodeled in the course of being assimilated, Borg-like, into the new Cosmopolitan hotel-condo-casino-resort.


The CityCenter site from behind.


The new Encore tower at Wynn Las Vegas.


The new Palazzo tower at The Venetian.


Ground-level construction on the Palazzo tower.


On the left is the first of two Trump Towers. On the right is the Encore tower. In between is a lot of future construction on the North Strip.


From the Encore tower to the Palazzo tower.


With the Palazzo tower in the background, a chunk of the Harrah’s section of the Monopoly board.


Caesar’s empire. Behind the Augustus tower, on the right, will be another high hi-rise hotel tower. The steel shed in the bottom right will be replaced by new convention facilities. At the corner of Flamingo and Las Vegas Boulevard, now occupied by an open-air plaza, Caesar’s will build 37,000sf of new casino space.


And not to forget dowdy old Downtown, the Landry restaurant chain, new owners of the Golden Nugget, are planning to build a new hotel tower behind the old Pioneer Club.

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July 1, 2007

Ask the Universe: Are two corporate identities better than one?

by

Suburban Phoenix Real Estate Broker

Author website

This came in as an “Ask the Broker” question, but it’s really a general business question. I’m hoping that people reading here will have some good ideas:

I am a small real estate developer in NC. I have built one small 22 lot subdivision. I have land, plans and county approval for a 28 acre, 70 lot subdivision that I hope to construct in the spring of 2008. We have a strong corporate identity. We have created a logo and our company is starting to be recognized. We have plans to open a real estate company to market our properties as well as a general brokerage. Some people have recommended that we open the real estate company under a different name and not let people know that we are expanding our company. Keep them separate and silent. My thoughts are that we are “branding” our company’s name in our area. I want people to know our name and understand we are a full service provider. Do you have any thoughts on this subject? Thanks so much for your opinion.

My own answer to this question comes from Mark Twain: “Put all your eggs in the one basket and — WATCH THAT BASKET!” The marketing value of branding is slow and unpredictable, but I doubt it gets quicker or more sure by being divided. If you’re doing everything right in each business, I would expect there to be some marketing synergy between them.

Inlookers: Am I wrong? Is there more to gained by separating the two business identities? What else should we be thinking about?

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June 28, 2007

New Homes Sales, Market Slowdowns, and Investor Irrationality: Looks like its Time to Face a Correction

by

Real Estate Investor

Author website

Tanking new homes sells should have real estate flippers and small investors worried. Today KB Homes reported a loss of $149 Million. Additionally, CEO Jeffrey Mezger remarked in the Wall Street Journal, “We can’t predict when market conditions will improve,” essentially ensuring investors conditions will not improve next quarter. Homebuilders have been feeling the pinch for over a year now, but it is finally getting serious.

Surface level analysis of the problems with homebuilders points to signs of a tanking real estate market and excess supply of new homes in some markets. Given the choice between a new home and a “used” home, most consumers will choose the new one. Additionally, homebuilders have the power to offer incentives like upgrades, favorable financing, and lower prices to move their inventory. Investors in hot markets that are cooling will find it hard to compete with institutions like KB Homes, Toll Brothers, Lennar, etc. This will make it tough to move, even the nicest flip.

Furthermore, this situation definitely signals a slowing in the real estate market. Despite what many have been saying on the Realtor/NAR front, investors and agents alike should be preparing for a real estate slow down. KB Homes sites access to capital as one of the mitigating factors affecting home buyers among other factors. This access issue will affect buyers, as well as more aggressive investors, who opted for no money down loans.

The deeper analysis suggests all of the negative news will eventually affect the market sentiment on real estate. Over the past six months the real estate market has seen the collapse of the subprime real estate market, issues with commercial and investment banks, mortgage rates rise, and issues with homebuilders. At some point investor and consumer confidence in real estate has to be affected by all of this news. While this news may not be the tipping point, investors should be asking how much more can the market take?

Investing is part fundamental and part irrational. At times the market seems to go 90/10 one way, and at times those proportions flip. As more negative real estate news emerges Read more

June 27, 2007

Jeff Brown hits the big time: Copyblogger praises Brown and Brown’s give-to-get white-paper strategy

by

Suburban Phoenix Real Estate Broker

Author website

From Brian Clark’s Copyblogger.com, guest contributer Mike Stelzner writes:

Mistake #2: On the flip side, how often do you see a white paper that is instantly displayed with the click of a link? While this provides immediate access to a reader, it fails to capture any information or make it easy for readers to sign up for your newsletter.

The Solution: What I am about to propose is a strategy that appeals equally to readers and businesses. Revisit my earlier premise, when you provide value, you gain respect.

Consider real estate investment specialists Brown & Brown. A few pages of their white paper, Achieving Early Retirement With Real Estate: Rethinking Traditional Retirement Planning, are presented before the registration form appears.

With this example, readers are given plenty of sample content before they are asked to trade their personal contact information for access.

This idea flows from the video game market. Remember playing video game demos that provided you access to the first two levels? By providing a good sample taste of the product, the hope is that people will act and want the full game. The same strategy can be applied to white papers.

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