Posted on January 21, 2010 @ 8:54 am - Written by BawldGuy
Wanted to give ya some food for thought going into the weekend. Leverage has been center stage in real estate and Wall Street the last few years. It’s meaning as it relates to investing of any kind was run through the meat grinder decades ago. In real estate investing, it now has the universal implication of the size of your down payment — a bastardized definition at best — a recipe for disaster at worst. The smaller the down, the more leverage applied. At best that ‘undersatnding’ is secondary to its primary essence.
The reason I bring this up is due to the flippancy with which the subject is tossed around in the media, at conferences I attend, and even by well intentioned real estate investors themselves. Viewing leverage as merely the ratio of down payment over debt is about as wrong as one might construe the concept. I’m reminded of a conversation on one of my all time favorite shows, M*A*S*H. Read the rest of this entry »
Posted on November 5, 2009 @ 7:26 pm - Written by BawldGuy
Short and sweet tonight, as the day’s logistics won the battle today.
If you’re relatively young or not yet 50, earning more than enough income at work, and living the lifestyle you more or less prefer, cash flow ain’t yer problem. Think about it from a practical viewpoint.
You’re paying taxes, saving money, going on vacations, and educating your kids. You have retirement plans at work, (please stop it) and have some other capital you’d like to invest in real estate. You’ve always been told cash flow is the way to go, so that’s what you set your sight on. That’s also why thousands of couples reach retirement with far less retirement income than was easily within their grasp when they started 15-30 years earlier. How much is far less you ask? If we’re talkin’ about 30 years of chasing cash flow over capital growth it could easily mean a 5-figure reduction in monthly income at retirement. Really. Read the rest of this entry »
Posted on September 16, 2009 @ 8:34 pm - Written by BawldGuy
So much of what concerns you as an investor (Captain Obvious alert!) is return on your capital. Everyone’s lookin’ for THE property. You know the one — double digit cap rate, highest quality tenants, location to die for, yadda yadda. What happens next is the learning curve, right? We all found out where the extra high cap rates hang out — bring yer bodyguard. It rapidly evolves into two lines intersecting. One is a return with which you’d be happy — the other the level of risk it takes to produce said return — one with which you’d be comfortable.
And there’s the rub.
Lip service is given to the intimate relationship between risk and return, but often not much else. What’s worse, both risk and return are just as often misjudged by the investor as a result of their analysis of a given property. Though I used to believe risk was more routinely misunderstood, I’ve come to believe it’s probably the return side of the equation. Read the rest of this entry »
Posted on August 31, 2009 @ 2:14 pm - Written by BawldGuy
Part of my job as a real estate investment broker is to recommend investors do — nothing. Whether that’s the case or not, the common denominator found in all my advice to clients, or those merely seeking a little quick guidance, is to ferret out what fits the factual circumstances and the investor. It’s not always cut and dry, but there’s almost always a path combining common sense with the comfort zone of the investor. Hint: It’s not the path clearly blocked.
By far the most difficult part of what I do involves both sides of the same coin. One side is advise given, which for one reason or another is not taken. I never take it personally. They asked, I offered my professional opinion along with a Purposeful course of action, then left it up to them. The other side of that coin is when they’ve chosen either to ignore my advice and/or picked an entirely different path to travel altogether. The only time that bothers me is when it backfires on them.
It’s like when we challenge gravity — paid for with a trip to the emergency room, some stitches, and a bill — and that’s when we’re relatively lucky. Read the rest of this entry »
Posted on August 18, 2009 @ 7:53 pm - Written by BawldGuy
Those who’ve been comin’ here quite awhile probably remember my ‘I’ve Seen This Movie’ posts. So far, nobody’s died — and it seems, as I spoiled the probable ending of this current horror flick, we’ll come outa this one bowed but not broken. The American people — um, that’d be you and me — allow ourselves a short period of whining, then we buck up and kick booty. Always have, always will. I’m thinkin’ a little economic review would be in order.
Having begun my career during the 1969 recession, a term I thought had to do with hairlines (Please — don’t say it, it’s far to easy.), I went through over 30 years before seeing a fixed interest rate under 7% — really. My first seven years in the business saw me close exactly zip, nada, zilch, zero transactions using non-government related loans. Sounds crazy now, but absolutely true. Think about it — who had 20% down? Not the folks with whom I dealt. Remember too, I was barely 18 when I started, proud to be shaving more than twice a week. 
After a few years of school and real estate, I went full time. Turns out I seem to attract recessions, as the ‘74-75 recession hit big time. Again, what did I know? Remember, I was still in the housing side of the biz at that point. I’d just started what was called ‘farming’, a new term to me back then, and just plowed through (sorry) my daily farming, oblivious to the national economy swirling around the porcelain fixture. Read the rest of this entry »
Posted on July 1, 2009 @ 8:12 pm - Written by BawldGuy
Getting two or more real estate investors talkin’ about when to make a move and/or what move to make can be interesting to say the least. Usually I can listen for awhile and pick out to what ’school’ each investor adheres. One thinks tax deferred exchanges (IRC Sec. 1031) are the be all end all to everything but athlete’s foot. The next guy is horrified at even the mention of voluntarily going out of ownership of a single piece of real estate, absent dire personal emergency. The Achilles heel of both these belief systems is their inflexibility.
You can hand both these guys an incredibly well done analysis showing multiple options and their predictable consequences. They’ll both smile, then do what they’ve always done.
Over the last 30+ years I can’t count how many times I’ve demonstrated beyond debate how their revered approach had cost them hundreds of thousands of dollars, sometimes millions. A few times they’ve challenged me to show their CPA these numbers — much to their chagrin. See, I don’t have a dog in that fight. I care about one thing — which strategy gets them to their Point B faster and/or more safely? Read the rest of this entry »
Posted on January 26, 2009 @ 10:40 pm - Written by BawldGuy
Let’s agree right up front, the best of Man’s plans are still subject to the unforeseen — the 100 year flood if you will. And no, contrary to the opinion of some, you can’t plan for anything and everything. Only the arrogance of Man leaves the table secure in the knowledge their plan has been rendered fail safe. Those who succeed as real estate investors understand the plan that cannot fail doesn’t exist. Even the concept of fail safe investing directly implies risk has been removed from the equation. Only children and fools would even entertain such a thought seriously.
Let us all turn to the book containing the investment facts of life. It’s found in the Book of Old School. The first line of the first chapter is a simple declarative sentence.
It’s called risk capital for a reason. Read the rest of this entry »
Posted on July 23, 2008 @ 10:44 pm - Written by BawldGuy
I’ve seen in the real estate business the rough equivalent of what my grandma saw in her lifetime with flight. Born in 1909 she saw in real time the embryonic stage of flight. The first successful flight was only six years before her birth. 60 short years later she watched, on a ‘machine’ not in existence until she’d been married and had four children (three on her front porch), American men land on the moon and come back safely.
Think of where real estate investment was 40 years ago. I’d compare it to the planes used in World War I. The MLS existed, but was in book/magazine form delivered by truck, supplemented thrice weekly on paper held together by staples. The establishment of financing exceeding 75% for Heaven’s sake, was a huge break through! Tax deferred exchanges required every property involved to close the same moment in time. Why would anyone do that on purpose? (Stories — I have stories.)
There were nowhere near the choices for real estate investors there are now — even the biggest thinkers didn’t see what came into being in the ’70’s. (at least that I can recall) My father didn’t use tax deferred exchanges, but then changed, deferring taxes, and he was thought of as a maverick by many of his peers. We’ve seen the rise of the real estate investor from the middle class which descended on us like a squadron of jets in the ’70’s. That new investor class has remained as a significant player to say the least. Read the rest of this entry »