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Category: Investment (page 14 of 20)

May 2, 2007

Real Estate Investing For Retirement — The Human Factor

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Real Estate Investments Broker

Author website

In the real estate investment side of the biz, everyone wants to talk endlessly about where to invest, how to invest, the best way to analyze the various investment factors, what needs analysis, and the rest. However, the most common factor left out of the process is the human factor.

How is the human factor described in the real estate investment process? Comfort zone.

There are any number of issues that can cause investor anxiety.

  • Not fully understanding the loan itself or the loan process
  • The size or lack thereof of the down payment — sometimes size matters
  • Acquiring property out of town, even out of state — “I can’t drive by!”
  • Tax deferred exchange worries — “What if something goes wrong?”
  • The timing of the acquisition — “Isn’t this a bad time?”
  • Just making investment decisions about when, where, why, and how

Most of the time comfort zone issues can be either minimized or eliminated by filling in areas of ignorance. I remember a client who was very afraid of investing out of state because if a tenant moved out she’d have to fly there. Obviously we hadn’t talked too much about out of state investing at this point. She was pretty anxious about it though, and was dead set against even considering such a thing. Once we explained the management team we had in the cities under discussion she relaxed a little. When we immediately called one of the management company owners (on speaker) and discussed the process her whole countenance changed. She now owns several properties in another state.

There’s nothing more soothing to a comfort zone violation than a knowledge injection.

hypodermic

Of course, the problem our San Diego clients face is there’s no real upside to investing locally. It’s not that in the next 5-10 years our local income properties won’t experience appreciation, because they will — it’s a given. But when was the last time you heard an investor talk about the great investment opportunities he uncovered in San Francisco residential income property? San Diego isn’t quite at that level yet, but they might as well be. When there are half a dozen areas within a couple Read more

April 30, 2007

The Carnival of Real Estate . . .

by

Suburban Phoenix Real Estate Broker

Author website

…is at TransparentRE. I can’t tell who won, so I’m left with the assumption that Kris Berg did not win, either with Sensible Flats and Social Responsibility or Houses Grow on Trees – Redfin Continues Quest for World Domination. O, cruel fortune!

Sadly, Jeff Brown, with An Example — How To Answer A Client’s Question, was also an also-ran at The Carnival of Real Estate Investing. Without intending to criticize, this Carnival comes off to me like a sort of hobby forum, something involving elaborate power tools and several exotic varieties of adhesives. Jeff writes about investing, so he’s always wide of the mark. The available categories in the entry form don’t even address what he does. Go figure…

But: In the somewhat-less-subjective world of “objective” journalism, Kris Berg emerges as a star Realtor in San Diego. More on this coup at The San Diego Home Blog.

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April 26, 2007

An Example — How To Answer A Client’s Question

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Real Estate Investments Broker

Author website

Recently I posted on the subject of how to most effectively answer a client’s or prospect’s questions. Then, as the universe sometimes does, I was asked a question by a brand new client that is pretty common. On its surface the question might seem facetious, but trust me, its been asked so many times in my office, I know that’s not the case. It usually goes something like this:

We’ve now banked the $100K from the refinance on our home. But Jeff, we were thinking. How much could it hurt to take just $20K out in order to get (fill in the blank) a new boat, truck, home landscaping?

These days, since I’ve heard variations of that question so many times, I begin by answering with a question, hoping to inject a little humor. I might ask — Will you be able to sell that (fill in the blank) for a million bucks 15-20 years from now?

When I pause to enjoy the RCA Dog look on their faces, I then begin to give them a very complete and substantive answer in rich detail. Though I posted it on my blog today, I’ll give you the short answer here.

yacht

In 15-20 years that $20K will likely be directly responsible for an extra $80,000 a year or so in retirement income. If you retire at 60 and live another 20 years, that’s $1,600,000 of retirement income — over and above what the rest of your initial investment capital produced over that same period.

Less than half of my clients will ever earn $80K a year on their job. And now they can have that much extra every year in retirement.

Unless of course, 20 years earlier they decided their new boat was worth $1.6Mil in extra retirement income.

Final note — I sent the link to my blog’s post to the client who most recently asked that question. His response? One word — Awesome!

And that’s how you answer questions.

April 23, 2007

More Strip Monopoly: Icahn sells Nevada casinos

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Suburban Phoenix Real Estate Broker

Author website

More on the theme of Strip Monopoly: Billionaire Carl Icahn is selling all of his Nevada casino holdings to Goldman Sachs’ Whitehall Street Real Estate Funds for $1.3 billion.

This is interesting on a number of grounds, taken more or less least to greatest.

Third, Icahn is going to net out about a billion dollars in profit on the deal. He’ll probably never make as much on casinos as Donald Trump has managed to lose, but a billion bucks is a billion bucks.

Second, Goldman Sachs is convinced that it bought a Strip-front property in the Stratosphere, along with 17 acres of underdeveloped Strip-front land the Strat has accumulated over the years. This is technically incorrect, and it’s an error buyers have made at that location since it was Bob Stupak’s Vegas World.

The Strip ends at Sahara — where the City of Las Vegas begins. The Strip developed in what is still unincorporated Clark County to avoid the kind of meddling municipal governments are best at. The Strat is not a grind joint like the dumps downtown, but it plays at a distinct disadvantage against its bigger, better-bankrolled rivals further south.

Today’s deal also includes a casino in Laughlin, and the two Arizona Charlie’s casinos in suburban Las Vegas. As with Boyd Gaming’s Sam’s Town properties, these are seen by analysts as being locals casinos, but, in fact, they draw their own segment of the tourist population — think of them as low-rollers with RVs. MGM Mirage’s announcement of the closing of the RV park at Circus Circus may prove a boon to these casinos.

But: First, if Carl Icahn is selling now, it argues to me that the bloom is off the boom for Strip-fronting (or pretend-Strip-fronting) real estate. MGM Mirage paid over $17.2 million an acre for the 33.4 acres it is acquiring at Circus Circus. That land come with a corner premium, to be sure, but is is for now the weakest corner on the Strip Monopoly board. If Icahn is selling, it’s because he believes prices are at their peak for now.

Is he right? Hide and watch. But with $4 billion in Read more

April 20, 2007

What’s the hottest game in Vegas? Strip Monopoly!

by

Suburban Phoenix Real Estate Broker

Author website

Oh, keep your shirt on… Strip Monopoly refers to that famed Parker Brothers board game (now owned by the soulless Hasbro, alas) as played with the real-life real estate on Las Vegas Boulevard — a/k/a “The Strip.”

Earlier this week, Kirk Kerkorian’s MGM Mirage acquired 33.4 acres of Strip-front real estate surrounding the company’s Circus-Circus property. This brings the Circus-Circus site, already 68-acres huge, to over 100 acres of land fronting on one of the priciest streets in the history of pricey streets.

MGM Mirage is already building the $7 billion Project City Center on and around the old Boardwalk property — apposite appellation strictly coincidental. The company plans a similar city-within-a-giant-casino development on the Circus-Circus site.

Vegas Today and Tomorrow has a nice Monopoly map to show you who is winning the game. Here’s a way of thinking of things: The green spots on the board are split between Wynn Las Vegas and The Venetian. Harrah’s owns the orange and the yellow properties. The railroads and utilities are divided among Boyd Gaming, Station Casinos and various minor players. Everything else belongs to MGM Mirage.

Harrah’s is technically the largest gaming company on earth, but MGM Mirage owns more undeveloped Strip-fronting real estate than Harrah’s owns in developed land on the Strip. All three of the companies that merged to form MGM Mirage — MGM Grand, Mirage Resorts and Mandalay Resort Group — have been persistently greedy in acquiring land on Las Vegas Boulevard over the years.

Circus-Circus was built by the man who may have understood Las Vegas best, Jay Sarno. He also built Caesar’s Palace, thereby inventing the idea of the themed casino-resort-hotel. Caesar’s, of course, has become almost a city unto itself, and it was the success of the Forum Shops that led other Strip casino operators to explore the convergence of gaming and shopping. MGM Mirage pledges to refurbish Circus-Circus as part of its development of the newly-assembled 100 acre parcel, so both of Sarno’s creations will live on in the city he influenced so decisively.

But what’s next for Strip Monopoly?

Other than Caesar’s Palace and The Paris, most of the Harrah’s Strip-front Read more

April 15, 2007

Designations — Real Education — Marketing — Give Me A Break

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Real Estate Investments Broker

Author website

I apologize in advance for the War and Peace length of this post. And also to those who, even though my intent is good, will become offended at the thoughts offered. My intention here is to offer real clarification to real estate investors as to what is really required in order to give them advice.

For those who may think I feel threatened by this newly acquired knowledge being acquired by mortgage brokers, think again. Michael Cook is just 26 years old. Most mortgage brokers with this 18 hour designation could study real estate investing for another year and wouldn’t know what Michael has already forgotten. Real estate investment brokers/advisors will more likely be cleaning up the messes made by those who think they’re qualified to give advice in that arena. The other day Brian Brady wrote a thoughtful post on Certified Mortgage Planning Specialist — CMPS. Before I continue what is sure to be a full scale Dennis Miller rant, I want to make two things very clear.

Brian Brady does know about the subjects taught in the 18 hours marathon of education they offer. He spent six years on Wall Street before entering the lending industry. You can’t fake it through six years — at least not on that street. 🙂 In fact, it’s my contention Brian could teach most if not all the 18 hours offered in return for this new designation.

Though I don’t take the designation seriously, I certainly don’t extend that opinion to the folks who earn it. They mean well. Brian had it right when he said there are many pros for whom he holds respect and admiration who either already have a CMPS or are headed that way.

Speaking only for myself, it boggles the mind how these folks think they can hand out real estate investment advice with 18 hours of education. That couldn’t possibly make them qualified to even be my assistant.

Is that too harsh? Too bad.

Here are just three of the subjects on which they will be advising their borrowers:

  • Real Estate Equity Management
  • Real Estate Investment Planning
  • Real Estate Taxation Concepts

There are more. And the Read more

April 3, 2007

Ask the Broker asks the audience: How best to invest an unexpected windfall

by

Suburban Phoenix Real Estate Broker

Author website

Another question requiring expertise far beyond a broker’s license. Fortunately we have two great investment writers, three off-the-charts lenders and a readership of very prosperous people. Here’s the problem:

I have come into a situation, and was wondering if you could give me your opinion. I have recently come into an inheritance of about $200-$250,000 from a family member who has passed away. I decided that the best use of this money is to invest in real estate. I have narrowed down my choices to four options.

  1. A foreclosed house which needs repairing, however it can be bought for past due mortgage payments and past due real estate taxes, legal fees, etc. for $200,000. The fair market value is about $300,000.
  2. A housing project which has HUD financing of $1,750,000 and a fair market value of $2,000,000. Rental is locked in for $150,000 per annum, plus certain adjustments. Expenses are the mortgage with interest at 8% and operating expenses of $25,000.
  3. A shopping center with tenant rentals on an escalating year-by-year basis. The center is currently 80% rented and receives $200,000 cash flow and operating expenses are $50,000. The seller wants $2,000,000 and he is willing to take back a second mortgage of $250,000. I feel like I can get a $1,500,000 mortgage from the bank at the current rate on a 20 year basis. The second mortgage will probabably be a 2% higher interest rate.
  4. A shopping center with tenants who are all NYSE companies. All the leases are triple net with rental income of $500,000 last year. Sales price is about $6,000,000 and I feel I can get a favorable mortgage from an insurance company at a good rate. If I would proceed with this option I would probably cooperate with friends to get around $1,000,000 and get a $5,000,000 bank loan. I feel the property will appreciate at 8-10% per year.

Who has a good answer for this?

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April 2, 2007

Wow! You Saved 4&162; A Gallon? What’re You Doing With The 60&162;?

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Real Estate Investments Broker

Author website

Now I’m not talking about the student or the guy with four kids, a mortgage and $98 in savings. I’m talking about the majority of people. It’s a phenomena that translates into real estate investment on a huge scale. But first, let’s look at what I call the 4&162; savings logic.

15 gallons results in a savings of 60&162;. If the average person fills up their tank every 10 days or so, that’s a whole buck-eighty a month as Grandpa used to say. In a year that’s a savings of less than $22. And that’s why they would waste time looking for that 4&162; savings?

gas station

Think about how people do this in so many areas of their lives. They’re like the blind man who only touches the elephant’s trunk and concludes it’s snake-like. Situational awareness combined with rational thinking and the long view, will almost always produce better results than behaving as if you’re blind.

Yet that’s how a surprising number of people consistently make their decisions when finances are involved. It never ceases to amaze me. Real estate investors often think this way, costing themselves hundreds of thousands of dollars — sometimes millions.

Here’s an example.

Cher and John are clients of mine, and are very successful investors. They were very quick learners. As a matter of fact Cher is sought by investors all over for her new found expertise in property management principles.

About three years ago I told them it was time to not only exchange out of four of their San Diego properties, but that they should take their net proceeds to the Phoenix area. They were fine with that. I also gave them the same speech I gave them before we embarked on their last exchange.

Don’t focus on how much you get for your properties as long as it’s in the reasonable range of value. Whether in fact you could have held out for another $10K on that triplex is a good conversation to have at Starbucks with your $5 cup of Venti Whatever and a cookie. Otherwise, as I tell my clients, “You won’t be able to find that 10 grand Read more

March 31, 2007

My short list of real estate carnival candidates

by

Suburban Phoenix Real Estate Broker

Author website

I am continually amazed at the people who write for BloodhoundBlog. Day after day they knock me out, but it’s always late Saturday or early Sunday when I am most impressed. Why? That’s when I have to make my short-list of candidate posts for the week’s real estate carnivals. Cathleen normally makes the final choices, thank goodness, but all of the contributors have a chance to nominate their favorites. Here are my picks for the week:

That’s nine, and there are more I might have included. If you missed some of these, give them a look. Only one will be entered in each carnival, and there’s no telling if we’ll win. But win, lose or draw, we are good and ever better. Go see for yourself…

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March 26, 2007

The Carnival of Real Estate . . .

by

Suburban Phoenix Real Estate Broker

Author website

…is at miOaklandCounty, Maureen Francis’ weblog. Teri Lussier’s introductory post came in fifth place,* not bad for a start.

With his post Persistence: The Investors Greatest Tool, Michael Cook took top honors at The Carnival of Real Estate Investing, hosted this week by the Ral Estate Investing for Real Blog.

Plenty of good reading at both carnivals, so get thee hence.

*Foot(-in-mouth-)note: I think I have this wrong. Teri came in “in no particular order” (sounds like second place to me 😉 ) and FBS Blog, one of my personal faves, took first prize.

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March 22, 2007

Avoid Being the Greatest Fool

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Real Estate Investor

Author website

The greater fool theory is simply this: Even if doing X doesn’t make sense, there is always someone dumber than me I can sell X to. Replace X with inflated real estate, sub-prime mortgages, stocks, garage sell junk, etc. This is the crux of bubble thinking. The major problem with this theory is that someone is always the greatest fool. It may not be you this time, but keep playing Russian roulette with deals that don’t make sense and it will be.

I learned of the greater fool theory first hand as an undergraduate in college. In the bubble year of 2000, I started my first online stock trading account with a hard earned $2,000 from my summer internship. I had a run of success you would not believe with a very simple (and very stupid) strategy. The strategy: watch what Internet firms report positive earnings, and then buy. Obviously I didn’t have a good concept of a DCF model or really understand what a P/E ratio was, but I did know that I was making a killing. In a matter of weeks I was almost up to $20,000.

Little did I know that I was simply profiting off the greater fool theory. Every stock I was investing in was insanely overvalued. With no real fundamental values to hang their hat on, the stocks in my portfolio fell as quickly as they rose. When all was said and done I had less than $500. I went from hero to goat in a matter weeks, wondering where I went wrong.

I am sure most seasoned investors have a similar war story. However, most new investors feel invincible. The problem with most new investors is that they have not gotten caught up in the frenzy of investing. It’s something akin to lemmings, when investors continuing buying even though they know there is no justification for their high valuations. Eventually, the first lemming falls off a cliff (sub-prime lending perhaps?) with the others soon to follow.

The question is why so many investors lose their grasp on the fundamentals? The irony is that it is usually fear of Read more

March 21, 2007

Persistence: The Investors Greatest Tool

by

Real Estate Investor

Author website

People have asked me what it takes to succeed in real estate. Honestly, I really think it only takes one thing, persistence. Many people eliminate themselves right away by never starting or quitting after one bad experience. This business certainly has its ups and downs, but the people that keep trying eventually succeed.

Here are a few examples where persistence pays off. First, let’s look at the tenant from hell. No matter how great your screening process is, eventually the dice come up snake eyes. When a tenant refuses to pay rent or destroys the property you put in a lot of sweat and equity into, it can really push you to the edge. When you realize you just can’t throw them out on the streets, change the locks, and tell them to go to a hot place (and I don’t mean Florida), what do you do? How you deal with this situation defines how successful you will be in the business.

So how do deal with them you ask? First, begin the eviction process early. If a tenant is commonly late with the rent become familiar with the eviction process because you will probably need it. Additionally, never get antagonistic with the tenants. You can never win this battle because an angry tenant is a destructive tenant. Many new comers in the business feel like they can sue tenants. Think again. While you certainly can sue tenants, if they are being evicted they will probably not have any money for you to get from them. After the eviction process has started, the best situation is to convince the tenant to leave amicably. I have known some landlords to actually pay tenants to move out. On the surface this seems crazy, but paying a tenant say $100-$200 vs. spending $1000 (or more) for eviction plus repairs makes financial sense.

Another common situation that requires persistence is dealing with contractors. I have never personally had a project come in on or under budget. The bigger the project the more financial padding you should put in your budget estimates. Always have more money than you need. Read more

March 17, 2007

Health, wealth, population, the internet — and more wealth: These folks are going to need a place to live . . .

by

Suburban Phoenix Real Estate Broker

Author website

During the boom, I wondered if the results we were seeing might have been fed by a reinterpretation of tax laws — deductibility of leveraged interest, the owner-occupant capital gains exclusion, the IRS Section 1031 tax-deferred exchange, accelerated depreciation of real estate related chattel assets, etc. In other words, were people stupidly reacting to a tulip frenzy, or were they wisely adopting different investment strategies based on changing circumstances — in this case, the spread of information about the tax advantages of owning real estate?

At the same time, no one in real estate in Phoenix takes their eyes off the demand curve, the incredible annual growth in jobs and population in the Valley of the Sun. I’m a real estate bubble skeptic as a default state. I doubted the bubble talk through three years of huge growth, and now through 15 months of a slow loss in values. I freely concede that I might be wrong, but, as always, I think there are very good reasons to bank on the Phoenix residential real estate market.

Whether or not I’m right about Phoenix, the world at large seems to be in for a long-term real estate boom. Here is a fascinating film that I found at Cafe Hayek. And here is much more from the gapminder.org folks.

The software itself is jaw-droppingly cool, but what the subject matter portends for every aspect of human life on earth — including real estate — is beyond enormous.

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Welcome to BloodhoundBlog, the national real estate industry marketing and technology weblog written by, for and about real estate professionals. Better yet, welcome to the wired world of real estate. We are busily inventing Real Estate 2.0 – technology, marketing, service and salesmanship. Like all Bloodhounds, we are smart, frisky and fiercely independent. We've built a spot on the earth – beloved over all – where each one of us can be who we are, no matter who that might be. We are committed to an idea of excellence that will flush the bums, the con-men and the crybabies out of the real estate industry. If you yearn to have your failures excused, your moral lapses absolved or your boo-boos kissed, seek elsewhere. But if you are sick to death of mediocrity – welcome home. Read all about us, subscribe to our feed and steel yourself for the hunt. We work hard, we play hard, we learn everything we can – and we bow to no one.

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