Posted on December 22, 2009 @ 10:51 am - Written by BawldGuy
This is a long post — it should be. Follow the progression and the numbers closely. At some point you’ll be reminded of someone in your past (present?) who followed Grandpa’s strategy and is now locked into their own life sentence.
There are many schools of thought when it comes to investing in real estate for retirement. Two of them dominate.
One says you buy property and hold it forever. When you’ve saved up enough to buy another one you do — and hold IT forever. The idea is you allow rental income to pay off debt as quickly as possible, arriving at the point of a free and clear cash flow machine. Do this more than once and you have the basis for a nice retirement income stream. Or so the story goes.
The other says cash flow comes from the yield on either capital or equity in an asset. The larger the capital amount or equity in the asset, the larger the income in terms of dollars. The ‘yield’ itself is expressed in terms of a percentage. For example, 8%. This school says that since the yield is the same, more or less, for a larger figure or a smaller figure, why not arrive at retirement with the largest amount of capital and/or equity possible?
The ‘Buy & Hold’ school (BHS) gets you there. But in what condition, and how much cash flow relative to the ‘Capital Growth First’ school (CGF)?
Buy and Hold Read the rest of this entry »
Posted on September 24, 2009 @ 10:11 am - Written by BawldGuy
This is a question taken from the old story of buying in an upcoming but previously ‘grungy’ area compared with buying in the tried and true ‘clean’ locations. I’d ask my client, “Would you rather have a clean $10 or a dirty $20?” Most, if not 90% said they’d rather have the dirty $20 of course.
It amazes me how many times investors opt for local properties when they have empirical evidence showing they’ll do way better in a region a state or two away. It just doesn’t make sense. This is especially true when technology keeps us so informed, usually in real time. Living in Iowa and investing in another state isn’t anything like it was 30 years ago. Back then an investor had the phone and snail mail. Read the rest of this entry »
Posted on September 21, 2009 @ 11:55 am - Written by BawldGuy
This isn’t about keeping something out of your backyard, it’s about whether or not it makes sense for you to invest your hard earned capital into your own area’s real estate. If you live in San Diego as I do, you know what the history of real estate has been. In a nutshell, if you invested and let it be, depending upon the cycle, sooner or later (never real long) your capital grew — big time. That was the case from the 1970’s ’till late 2005 or so.
For the record, San Diego is not, by any stretch of the imagination, the Lone Ranger in this. It’s true for California in general. Look at where you live. Is the median price of a home affordable for the typical family? No? See, it’s a matter of degree. San Diego is ecstatic cuz their median home price is now under $400,000! What’s your region’s median price? If it’s much over $200,000 the regular folk are beginning to be crowded out. If that’s the case, your 1-4 unit residential income properties are already becoming less attractive.
Enter what appears to be a paradigm shift — in fact two . Read the rest of this entry »
Posted on September 14, 2009 @ 7:42 pm - Written by BawldGuy
You don’t hafta own debt free income property in San Diego, or Palo Alto, San Francisco, Orange County — heck, the west coast in general, to know how much of a value hit you’ve taken recently. For so many regular folks who’ve called me, the conversation often follows the same script. The good news (no always) is they own free and clear residential income units, usually 1-4 units per property. The bad news is they’ve dropped in value anywhere from 25-50% depending upon where they are and when they were acquired. Ouch and a half!
There are many areas like San Diego, where many of these calls originate. When duplexes are still selling for $300-450,000 with Net Operating Incomes (NOI) of $15,000 or less, the numbers simply don’t work for 90% of the investors out there. When it still requires 35% down just to break even every month, folks tend to look elsewhere — especially these days. There are several pockets around the country where a 20-25% down payment will yield positive cash flow from Day 1. Ironically, those alternative markets are more likely than not to offer better relative locations along with higher quality tenants to boot. Read the rest of this entry »
Posted on September 2, 2009 @ 3:28 pm - Written by BawldGuy
Last week you got that raise. At 40 you’re making what you thought you would be at 50. Way to go! Once the raise kicks in you’ll be banking more Benjamins than ever. And that three unit property you bought back in ‘99? It’s cash flowing like an ATM thank you very much. You’re in the money — and things are really looking up. As a matter of fact, those units have gone up over $100K since you bought them — even after the current market correction.
How could things be any better? The answer? Easy.
Let’s do this by employing just a little Socratic questioning. Read the rest of this entry »
Posted on June 24, 2009 @ 7:21 pm - Written by BawldGuy
Hey AI — Let’s apply your Devil’s Advocate take to San Diego. AI’s thoughts can be found in the comment section of yesterday’s post.
Here are Another Investor’s Devil’s Advocate positions, followed by my thoughts. For the record, AI is one smart cookie. A very experienced investor with a keen analytical mind. Talking with AI is one of my new favorite things to do. So, here we go — AI’s point by point Devil’s advocate position — and my answers.
1. People want to live in SD. Read the rest of this entry »
Posted on January 23, 2009 @ 12:06 am - Written by BawldGuy
As regular readers are aware, the pictures published here are for my entertainment. It’s my hope you’ll find ‘em fun too. In the spirit of full disclosure, they have nothin’ nada zilch to do with the content. Just so ya know. If ever you make a connection between pictures and content? Please, keep it to yourself. 
Tonight’s post is meant to be a reminder. It’s nothing earth shaking, and I’ll probably wonder a bit. It needs to be said during buyers’ markets. Understand the underlying truth to the message though. There’s nothing worse than buying a stud horse, then learning too late you really have a pig in a poke.
In markets like we’re currently enmeshed (love that word), the siren call of what the investor might perceive as monster discounts are often more like a strong riptide. The warm inviting water, the rollin’ waves, and pretty soon yer 300 yards from shore with no earthly idea how you got there or why — or how to get back to shore. When you head into an area offering those kinda discounts it’s crucial to take a step back to access what you’re really lookin’ at and where it is — and what the fundamentals are screamin’ in a loud and clear voice.
In most regions we’ve seen, there are pockets, often several more or less contiguous neighborhoods seemingly immune to this market correction. That’s true in San Diego. One example is where my aunt ‘n uncle live, in La Costa. The correction has made only a courtesy dent in their home’s value. Not so in most other areas in the county. Read the rest of this entry »
Posted on April 2, 2008 @ 12:32 am - Written by BawldGuy
Please forgive the title, but sometimes I grow weary of all the nay sayers out there, rooting for a complete collapse. Surely this correction, both for the national economy as a whole, and real estate housing specifically, have demonstrated unique qualities. Subprime is now part of the culture’s lexicon. The banking system has been tested mightily, as has the leadership of the Federal Reserve and its Chairman, Ben Bernanke.
I’ve never been one of those real estate cheerleader types. You know the ones, there’s never a bad time to buy real estate, yadda yadda. When the market’s sucky that’s what I call it. You can’t go through as many bad markets as I have and do otherwise.
Those who’ve been buying real estate investment property lately are gonna feel pretty good about themselves a few years down the road. Even back in the post recession years of ‘74-75, or after the S & L Crisis resolved itself, the perfect storm we see today never materialized. The missing link? The permanent loss of historically reliable investment regions like say, the entire west coast for instance. Or how ’bout the emergence of new ‘destination’ regions in Texas, (Dallas/Fort Worth) Idaho, (Boise) and Kansas City to name a few? But the real difference is the long term fixed interest rates available for investors.
Just to be consistent and on point for my San Diego readers — Get Outa Dodge — and get out now.
Thanks — I needed that. Now back to our regularly scheduled post.
First Sam Zell says what I’ve been saying for months. The housing market isn’t nearly in as bad a shape as mainstream media wants us all to believe. In fact he said a recovery would begin this spring. I think he’s pretty aggressively optimistic to say that, but he’s the billionaire, so I’ll let time tell us if my 3rd to 4th quarter scenario is correct or not.
This was followed shortly thereafter by the markets in Texas I like so much experiencing incredible real estate growth, even more impressive population growth, and a precipitous drop in vacancy rates. Oh, and did I mention the simultaneous increase in apartment construction there? Oh yeah — good times.
This week two giants also decided it’s time to buy. As David Stejkowski duly noted, both Shorenstein and Blackstone have raised prodigious amounts of capital for the acquisition of billions in commercial real estate.
And here’s a gift for San Diego readers who are owners of local income property. Allow a short preface. Your properties are worth significantly less today than they were three years ago. Yet, if you had the choice, you wouldn’t buy your own property for even today’s value. I’ve asked that question of a couple dozen local real estate investors, and with two exceptions, they all admitted they wouldn’t think of buying their own properties again — even at today’s discounted values. 
Read this quote from Mr. Shorenstein and think of what you should be doing with your San Diego income property. (Hint: Get Outa Dodge)
Shorenstein, son of company founder Walter Shorenstein, told the New York Times in 1995: “If somebody is willing to pay a lot more than I would pay, then we’re a seller.”
That quote was taken out of an article published two days ago in the San Francisco Chronicle, entitled — Waiting for real estate bounce. Read the article to learn how Shorenstein is thinking about this market.
Bloomberg tells us about Blackstone’s $10.9 Billion in today’s update. Blackstone Group for those reading the name for the first time, is the world’s largest leveraged buyout fund.
So, there you have it. Sam Zell — Shorenstein Co. — Blackstone Group — all saying the window of opportunity is upon us.
Put that together with what Wall Street has been saying, especially today, and one could conclude the Bulls are about to make their final move against the staggering Bears. The jury is still, of course, out. But I’ve been saying in these pages for the last 90 days or so, that this is the final skirmish between the two. It appears to me the Bulls have the Bears in the corner hoping for a last minute miracle.
Finally, without wavering, I’ve been backing Fed Chairman Bernanke since Day 1. He’s made the correct moves, all the while listening to critics who wanted him to do their bidding on their schedule. He’s done it his way. We won’t know for awhile, but it’s my contention we may look back at the first 92 days of 2008 as the period the good guys triumphed, led by Bernanke.
I’d give you a much clearer picture, but since the crystal ball hasn’t come back from the shop, this’ll have to do. But, just before I put it in the shop, I looked to see what might be next for the general lending outlook.
BawldGuy Prediction: On or before July 4th, real estate loan underwriters and their bosses will have rolled the clock back to basic sanity. Meaning? Loan programs now unavailable will reappear. Virtually impossible underwriting requirements will quietly be retired. Lenders will wake up, realize it says L-E-N-D-E-R on their foreheads. The next thought will be how little they’ve been acting like a lender. Then they will find ways to lend.
Why?
BawldGuy Axiom: Lenders lend.