Posted on June 10, 2008 @ 10:28 pm - Written by BawldGuy
Had a great conversation with an active client today. The discussion wandered over to stocks vs real estate. He’s been in that game — as a player for both sides. This is when I asked him his stocks’ return compared to his real estate. A minor pause ensued, as we both knew the answer. So why would you keep putting hard earned cash into something performing at a fraction of the return as the alternative does in a mediocre year?
Simple — you wouldn’t. He’s moving the lion’s share from stocks, to cash, to real estate. Smart move.
Look, I’m not interested, nor am I gonna spend much time arguing with the Wall Streeters on this subject, ‘cuz it’s not fair to them, and it’s frankly a waste of my time. Am I saying you shouldn’t invest in stocks or mutual funds? Nope — it’s your money and you should do what you think best, and fits your personal comfort zone. Getting out the portfolio folder and checking your stocks’ historical performance might be an idea to consider.
If your stocks return 10% yearly, how would your real estate have to perform to beat that return?
If the real estate appreciated at 3% annual rate, and you put 20% down, your return, sans tax benefits and cash flow, is 15%. Do we really need to take this any further? Really? Read the rest of this entry »
Posted on June 6, 2008 @ 12:45 am - Written by BawldGuy
I hate infomercials hard. Then there are the cattle call seminars promising their spellbound audience great riches and early retirement through investing in real estate for cash flow. It’s not that the idea isn’t way cool, it is. But seriously people, the stuff they’re puttin’ out will make your lawn grow faster, but not your capital. And cash flow? Give me a break.
It’s the old ‘on paper’ vs real life thing. On paper, a house bought at the Dollar Store with stoopid high rent, makes real estate mogul type cash flow. Let’s look at this video frame by lyin’ frame, OK?
First Frame
Pulling the common sense card from the deck right off the bat, one’s gotta wonder — if they’re such great properties, why are the so dime-a-dozen cheap? Duh. ‘Cuz nobody wants ‘em, that’s why. Was the first clue a Glock is required to get in and out of the neighborhood? Real estate is a slave to the law of supply & demand. There’s nothing special exempting income property from that law.
I have clients who’d buy them literally by the dozen — for cash — if they were really what they say they are. I’d own a hundred of them by now. No, two hundred. Why not? They’re that cheap, right? And the rents are as high as properties selling elsewhere for five times the price. Pullleeeze. You know the guys on TV are actors. Real folks couldn’t keep a straight face.
Second Frame Read the rest of this entry »
Posted on June 2, 2008 @ 11:56 pm - Written by BawldGuy
I was asked an excellent question over the weekend. It forced me to pause awhile before answering. It wasn’t that the answer wasn’t coming to me, it was how to frame it. The questioner was gonna hear an answer they didn’t necessarily bargain for, and how it was presented was important to me. I didn’t wish to offend or cause hurt feelings. The question?
“In your opinion, what is the most common hindrance to the real estate investor’s chance for long term success?”
Seems innocent enough, doesn’t it? Not by a long shot. Understanding the answer is critical to discerning why one investor seems to do better than another. It’s too late, at least much of the time, once the rubber has hit the road. Understanding the answer to this question is one of the keys to attaining the retirement for which you’ve worked so hard.
The real estate investors with whom I speak daily, answer this question themselves. In their own words they remark on something I said, maybe even as a throwaway thought.
The Answer Read the rest of this entry »
Posted on May 30, 2008 @ 12:06 am - Written by BawldGuy
San Diego and (California in general) has been the best girlfriend ever. Loyal, always thinking of just us, enriching our lives almost without fail, and bringing additional commas to our bank accounts. Talk about having it all, we sure did.
She always played our song. Happy days? The status quo. Even when she was down, we knew from experience she’d bounce back — and even more lovable than before. Well, as happens in real life sometimes, that perfect mate has tired of us and left us high and dry. She’s walking away, and she ain’t comin’ back.
People, that’s exactly what’s happened in California. Investment property has taken a different path. The days of buying, holding for a few years, then selling or executing a tax deferred exchange yielding splashy results are gone. I think they’re gone forever. Why?
Glad you asked.
Your property is now worth, after this market correction, 150-300% of competing markets in out of state growth regions. In San Diego for example, a 35 year old duplex in a decent area sells now for $425-525,000 (often more) give or take. Also, in order to break even every month the investor must put down at least 30% and usually 35-45%. In NoCal 40% is considered wicked good leverage — no kiddin’. The Kool-Aid they drink in Palo Alto and the Bay Area in general is phenomenally effective. They’ll realize too late their lovingly loyal maiden has decided they’re not the Knight in shining armor any more.
Surveys show — capital growth rates fall when leverage is severely depressed. (anonymous smart aleck) Read the rest of this entry »
Posted on May 24, 2008 @ 8:24 pm - Written by BawldGuy
This past week, and throughout all of the coming week or two Brown and Brown clients have been and will be closing escrows. Every single client is acquiring multiple properties with 10-20% down payments — with a fixed rate of 6%.
Wait just a doggone minute here! Real estate investors can’t do that any more, can they? Ah, yeah, they can. I keep tellin’ you. Stop drinkin’ MSM’s (mainstream media) Kool-Aid. While from every corner we’re being told what we can’t do, we’ve been doin’ it.
I’ve had clients tell me right up ’till they get confirmation of closing, that the loan won’t materialize. “Hadn’t I been following the news lately?” Read the rest of this entry »