Posts Tagged real estate

How to Invest in a New Real Estate Market

by Leon Yang on BiggerPockets

CityStreetA friend of mine recently asked me about how he should start going about when finding a market to invest in. As I answered him on how to approach the market, I noticed his eyes started wandering when I continued to spew information out like a loose fire hydrant for the next fifteen minutes. My diplomatic friend suggested that I should write all my thoughts down instead. So here I am.

How Healthy is the City?

As I stressed in my podcast before, I’d look at where I invest based on how healthy the city is. I do not feel comfortable investing in a city with a declining population such as Detroit. A real estate investment can sometimes take as little as a year or as long as decades before you realize your profit. You never want to be investing in a city where you have no idea where it is going to go in the short to medium term.

Thus, when you pinpoint a market to invest in, make sure you drive around the entire city. Every city has its good neighborhoods and its bad ones. Even within the city there are areas where people are leaving and where people are clamoring for. One of the ways to look for a growing area is to see how the infrastructure is. Is there a Wholefoods? Are there parks? What about the library? Where is Target setting up shop? The more developed an area is, the more likely that the neighborhood will be staying for a long time. Obviously, do check out the houses as well. Good curb appeal typically means that the neighborhood has good homeownership pride. I tend to peek at what cars people are driving as well.

Know the Home Prices in Every Neighborhood

I would then go to Redfin or Trulia and start looking at the price ranges of the homes. For the most part, prices will be higher in premium neighborhoods. But having done the drive, you might start noticing certain neighborhoods which are good neighborhoods but prices haven’t caught up yet. Sometimes you can find bargains there. In any case, after all this you’d have a pretty good idea of whether the city would be worth investing and where you would want to invest in at.

Side note, certain investors enjoy chasing higher rental yields by investing in lower quality neighborhoods. This is a personal choice. I cannot say which one is better. Personally, I prefer to get a lower yield by investing in better neighborhoods. I do not have the time nor the patience to deal with lower quality tenants who tend to reside in those neighborhoods.  Time is valuable to me and I believe in investing in good neighborhoods to avoid headaches.

Find the Right People

Then I would visit several property managers and explain to them that I am planning to invest in the city and is potentially looking for someone to work with. Again, depending on where you are and what you do, you may not need a property manager. Nevertheless, they are a good source of information as to which neighborhoods tend to have better tenants. This process is just sort of reaffirming what you have discovered so far.

Lastly, I will now find a real estate agent. I’d want a real estate agent who is willing to hustle and has an investor mindset. An easy question to ask is whether he or she invests in real estate. A real estate agent who does not invest in real estate is not one that you would want to have. Obviously, this depends on the market. But if the market is good, why isn’t the real estate agent investing? Since you will be working with the agent most of the time, you have to test the agent to see if he or she knows as much as you. On the flip side, you have to show the agent that you are a serious investor. If the agent senses that you are just here to play around, the agent is not going to spend a lot of time on you. You, too, have to impress the agent with your knowledge of the market. But do not be afraid to try sending out a bad offer and see if the agent is there to look out for your interest. If you try to “overpay” for a property and your agent is not there to stop you, it is time to look for a new agent.

With that being said, good luck in investigating your next market!

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The Greatest Transfer Of Wealth Ever

A vast number of people think that what we’ve been through during the last four years is just another episode in the economic crises history of the United States.  They believe a president has the power to continue the trend or reverse it.  So they put their faith in the next presidential elections.  They think their favorite candidate, whether Romney or Obama, will bring about the change they wish for.  So they go and vote.  Then, if their candidate wins they expect miracles from their leader until yet another economic event hits them and the dream fades away.  And so it goes every four years while the giant Titanic is sinking.

The reality of it all is that it matters little whether Obama or Romney becomes the president. Why?  Because – contrary to what we’ve been told – since 1913 the president or congress has had no control of our monetary policy.  The central bank has such powers.

During the last four years Mr. Obama has followed the policy of the Federal Reserve.  His major campaign contributors during 2008 elections are listed here.  If he wins, he will continue the same policy.  If Mr. Romney wins he will take over the torch because the money that funded his presidential campaign accepts no opposition.

I bring this up not to be political but to demonstrate to my readers that our next president won’t have the ability to fix the economic crises.  Therefore we should not rely on the government to make our lives and/or our children’s lives better. It is up to us to learn, assess, and prepare for the future by making educated decisions, while we still have the ability to do so.  Let me explain.

Sound monetary policy is vital to the economic recovery.  That is because it is the bad monetary policy that caused the problem, not once, not twice, but throughout history according to the Austrian School of Economics.  Asset bubbles form due to artificial expansion/inflation of money supply.  This is the key, this is the underlying cause.  When newly created (by the Fed) money – out of thin air – finds its way in the economy it flows into assets such as real estate, commodities, or securities.  The result is artificially inflated assets.  This is not sustainable.  If it was we would be trading houses today in the millions of dollars. It is not sustainable because in such a scenario the market forces would lead to a currency collapse.  If the bad monetary policy continues we will eventually end up with a dollar not worth a continental.

Since the real estate bubble burst there was no good monetary policy.  Money supply is still being expanded via bailouts and QE’s.  There was no good policy before either.  Such policy helped to induce the bubble.  A good monetary policy means stopping the creation of new money.  It means stopping the Fed’s printing pres, which in turn would cause the interest rates to go up.  Corporations would go bankrupt.  People and the government would be forced to live within their means.  Produce a lot, spend a little, and save more.  It would be painful.  Even though it would be temporary it would be necessary for a healthy recovery.  But again, it would be painful.  It means experiencing the withdrawal symptoms after years of addiction.  No politician wants to have that happen on his term.  Thus, the politicians will continue to kick the can down the road.

The question is what could potentially happen as a result of the failed monetary policy?  At least two problems.  Currency collapse and/or astronomical rise in the interest rates.  Both are conducive to loss of purchasing power for the average man.  Both require a pro-active approach in lieu of the common reactionary one.  I would not expect such approach from the government.  So, it is up to the average Joe to take the matter of his finances in his own hands.

I titled my article “The Greatest Transfer of Wealth” because such event is ongoing now.  Bad monetary policies destroy the working middle class.  It happened to the Romans leading to the collapse of the empire.  It happened to Weimer Republic in the early 1920’s leading to the rise of Hitler.  It happened to France, China, Russia, Argentina, Mexico, and most recently to the wealthiest country in Africa, Zimbabwe.  For a history on money and governments out of control read Daily Reckoning’s “Fiat Currency: Using the Past to See into the Future“.

Still not convinced?  Consider your net worth during the real estate boom and before the 2009 collapse of the stock market.  If your net worth is higher today you deserve to be congratulated.  You are in the 5% bracket.  If your net worth is lower today then you’re in the 95% bracket.

Within a few short years there’s a reasonable likelihood that the middle class will only keep its name.  In real life it will be partially or fully dependent on the government.  Being dependent on the government comes with strings attached.  Working a 9 – 5 job will not make the average Joe independent.  To get in the 5% minority bracket one must be truly visionary.  He must live his life unlike the 95% majority.  He must think like a contrarian and he must invest like a contrarian.

Because I spend my time helping people finance commercial property I get to be exposed to unconventional ways to increase wealth.  Whether they are in real estate equities or debt, in commodities or the stock market, the driving criteria is to buy when the majority is selling and to sell when everyone else is buying. There is an incredible opportunity today to buy quality real estate at extremely low prices.  Yet, the real estate market activity is supported mainly by investors.  Part is domestic and part being the citizens of other countries.

But the 95% doesn’t get it. They continue to keep their retirement with their stock broker.  They would rather have their hard earned money invested in the artificially inflated stock market.  They are now comfortable that the Dow Jones – and their retirement account – is getting close to the levels pre-2009.  Never mind the cost of living jumped up.  Never mind that there are investments in hard assets today which are considered by a few (the 5% bracket) less risky than the stock market.  Never mind that such assets produce a monthly stream of income better than most of the dividends paid by corporations. They won’t take the risk, or at least this is what they think.  In reality the risk is in following the conventional wisdom and maintaining the status quo.  American writer, Lillian Smith once said “When you stop learning, stop listening, stop looking and asking questions, always new questions, then it is time to die.”  So will be the faith of the average retirement account.

My goal is to share economic news with my readers.  Then, present them with possible solutions. Please note that any type of investment represents a risk.  It is your responsibility to research, learn, and evaluate whether any investment presented on my site is right for you.  At your request I put you in touch with the representatives of the companies I promote.   You should evaluate the company, the projects, and ask questions.  You should visit the property.  You should also seek advise from your accountant and/or a professional you trust before investing in any of the investment opportunities offered on my site.

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My Warning to Women: Get Your Questions Answered Before the Crisis Hits

By Gary North

In the United States, women outlive men by at least four years. In most cases, wives are several years younger than their husbands are. Combining these two statistical facts, we reach an inevitable conclusion: today’s wives are likely to spend more than half a decade as widows.

The reality of widowhood is that a woman will become dependent on somebody other than her husband unless she is fully in control of her faculties and her finances.

A woman who wants to remain independent in widowhood should understand from the day she gets married that she must learn the basics of family finances. The better she gets at handling money, and the better she gets at making money, the more likely she will retain her independence during the inevitable years of widowhood.

The problem is, people discount the future. They assume that the future will take care of itself, and that the future will be mostly positive. The trouble is, the older we get, the less likely that our future will be positive. The clock is ticking.

It is common in the United States for women to control the household budget. Couples should work together to establish spending and savings, although I don’t think this is as common as we like to believe. These days, programs like Quicken make it relatively easy to budget and to track a family’s spending patterns. It is easier than it was 20 years ago, and surely easier than it was 30 years ago. It is common for wives to handle the Quicken accounts. The question is this: Do wives have equal input on how the money comes in, and do they have equal input on what should be done for the long-term support of both of them in their retirement years?

We think that people act in their own self-interest, but we find that people prefer to defer. They prefer to kick the can down the road. They prefer to imitate Congress. The trouble is, the decision of Congress to kick the Medicare can down the road guarantees that the vast majority of women who are alive today will spend their final years as complete dependents on their children, and that they will probably be destitute.

There really is no escape from this statistically. We know the Medicare system is going to bankrupt the government, and therefore we know that the Medicare system will be modified so as to break the promises the politicians have made regarding the last years of our lives. There is no escape from this. It is going to hit every Western industrial nation. No one who looks at the numbers expects anything else.

Nevertheless, the vast majority of wives in the United States and the West do not begin to assert co-authority over the spending patterns of their households, despite the fact that they will be alone in their final years. They refuse to make decisions today that might give them a degree of protection in their old age.

One of the reasons why I favor the purchase of investment real estate is this: in people’s old age, the houses are owned free and clear, and the rental money is gravy. A person who owns half a dozen homes free and clear is going to make enough money to have a comfortable middle-class lifestyle in retirement. I realize that not everybody can own half a dozen homes, but everybody who subscribes to this website can.

One way or the other, wives are going to have to make decisions over where the money goes. They can begin to make these decisions in joint consultation with their husbands today, or they can wait until their husbands are dead.

Twenty-five years ago, Mark Skousen’s wife JoAnn published a newsletter for women. It focused on investing. The newsletter did not gain enough subscribers to stay in business, and so she ceased writing it. It was a very good newsletter. It was quite relevant. It didn’t matter, because she couldn’t get enough women to subscribe.

About that time, I interviewed Charlotte Foehner. She was the author of a very good book called The Widow’s Handbook. Her targeted audience was women like herself. Her husband had died unexpectedly, and she knew virtually nothing about investing. She had enormous responsibilities, and these responsibilities hit in a time when she was most psychologically vulnerable. Her husband was dead, and she had to put his affairs in order. He should have done this before he died. She should have insisted that he do it before he died. He didn’t, and she didn’t.

Answers can be painful. Answers increase the level of personal responsibility. Nobody can claim ignorance if someone has answered a major question. People think that they are better off by remaining in the dark, because they assume the problems are not going to hit them, and they might as well not think about it.

This is the attitude of the vast majority of Americans today. If they had any idea of what will happen to them, statistically speaking, more of them would start asking questions. But they don’t know, and even if they did, they would not like the answers. The answers would force them to restructure their lives. Answers would force them to restructure their dreams.

The fact that women become dependent on their husbands early in their marriages, because women have to take care of the family, gets them into a mentality of dependence. It is easy to become dependent upon the husband’s decisions. This has been the traditional approach throughout most of history. But with the vast increase in the division of labor over the last century, and with the increased life expectancy of women, this tradition is now a liability for women.

A woman has got to face statistical reality. She is going to be a widow in the final decade of her life. She is going to have to make her own decisions, and if she is incapable of doing this, either mentally or financially, somebody else is going to make her decisions for her. Traditionally, this has meant her oldest son and her daughter-in-law. She may trust her oldest son, but she has to face the reality of potential vetoes by her daughter-in-law.

A woman who is determined not to be dependent upon the judgment of her daughter-in-law should face reality early. She has got to have an independent stream of income, and she has got to have somebody other than her daughter-in-law making the decisions about how this stream of income is going to be allocated, and by whom.

Anyone who does not have an independent stream of income is inevitably going to be dependent. Any woman who does not want to be dependent upon another woman, especially a younger woman who resents the added expense of a mother-in-law, had better take great care in building a separate estate for herself in her old age.

Look at the median net worth of American families. Adjusted for inflation, it has not risen in 20 years. Most of this wealth was in the family’s home. That’s why it peaked in 2007.

This includes all age groups. Older people have more money. Whites at age 65 probably have about $225,000 in net worth. It was higher in 2007. Then the housing bubble popped.

http://www.agingstats.gov/agingstatsdotnet/Main_Site/Data/2010_Documents/Docs/OA_2010_Updates_123010.pdfThis is the measuring rod. Each family should assess its net worth.

How long will you last in retirement? In calculating this, add to expected expenses the replacement of Medicare, which on average pays $900 a month per household member. That was in 2009. It’s higher today; medical costs keep rising. Figure $1,000 per person per month. Two members means $2,000 a month. That is what it will cost to stay alive and healthy after age 65 when Medicare goes bust, which it will.

Who will be able to afford this? For how long?

If a person sells his home to pay for medical costs, where will he live? Add another $1,000 a month for rent. But medical costs will not decline.

Preparing for retirement is not easy. It involves asking questions. Any woman who does not ask questions is basically saying that she is content to live under the jurisdiction of her daughter-in-law in her old age. She had better have a financially secure daughter-in-law, and that daughter-in-law had better have her mother-in-law’s best interests at heart.

It is better to ask questions now than to be told what to do later.

Note:  Gary North is one of the most brilliant men I know.  He is a virtuoso in the field of economics and investing.  Check out his website at http://www.garynorth.com/.   Also, if you’re thinking of investing in real estate click HERE to read the criteria for my Turnkey Real Estate program.

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Real Estate Tools on the Internet

Maybe you’re looking to buy an investment property outside of your area.  The property looks great in the pictures, the net operating income and the CAP rates are excellent, but how do you know the area in which the property is located suits your criteria?  Before you spend money on an airline ticket there is something you can do, something that will only take a few minutes of your time and costs no money.

Or maybe your son or daughter is being relocated in another part of the country and he/she needs a place to call home.  I know your heart will be broken but after getting used to the idea that your child is not moving away from you but is moving away to better her life there are few things you may want to help with. You want to be sure your child will be living in a safe place and below are a few tips of how to accomplish that.

Spend a few minutes checking out this free internet tool at NeighborhoodScout.com.  This tool ranks neighborhoods into four shades of blue, with dark blue being the safest.  You can also input the address of the property you’re looking to buy or the apartment your kid is planning to rent, and voila, you’ll get all kind of “goodies’ about the area.

Another excellent tool is SpotCrime.com.  It describes each of the crimes committed in a neighborhood – shootings, assaults, robbery, thefts, vandalism, etc.  If you invest your hard earned money in a property outside of your city you may have preferences of location based on the crime rate.  If your kid has chosen an apartment because it was less expensive be sure to check the neighborhood crime before committing to a lease agreement. Sometimes a higher rent is justified considering our kids’ safety is priceless.

One of my favorite research tools is City-Data.com.  Free demographics provided on this website allows me to better understand the economy and real estate values.  These reports include population, income levels, demographic trends (are people moving out), and the crime rate.

Last but not least another important internet tool is available when you are ready to (instantly) place your commercial loan.  This easy to use website is called C-Loans.com.  C-Loans is the largest of the commercial mortgage portals, and it enjoys 750 different participating commercial lenders.

The user merely inputs his commercial real estate loan request and then chooses six of the suggested thirty commercial lenders.  If none of the first six commercial lenders wants to make his commercial real estate loan, the user merely comes back and checks the next six commercial lenders.  And best of all?  C-Loans.com is free!

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To Invest or Not to Invest in Today’s U.S. Real Estate? That is the question!

The current U.S. real estate bear market comes with different perceptions. On one side are those – the majority – claiming the market is depressed and it’s “too risky” to invest in real estate today. On the other side are the few taking a bullish approach because of the great bargains, low prices and excellent monthly returns. Competition is minimal because most people wouldn’t endeavor to make real estate part of their investment. A good number of owner-occupant buyers, the largest segment of real estate activity has been eliminated. These folks won’t turn their credit, income, and savings over night. Banks will continue to “proceed with caution” thus keeping many Americans renting – instead of owning their own homes – while the concept of easy credit standards will soon be history.

To get clarity on the Boom and Bust aspects of real estate it’s essential to revisit last decade’s events from an economic standpoint. Back during the early 2000’s the real estate boom started as a result of the credit expansion policy of the Federal Reserve. Add to that the government’s intervention in the lending sector and the deregulation of Wall Street’s paper derivatives and you have the recipe for an “artificial” booming economy. I refer to it as artificial because it had no ingredient of a free market growth.

A bust was inevitable yet it was only foreseen by a few while everyone else was gambling on continued rising values. The first sign expressed itself in the form of sub-prime loans default, the catalyst for the banking chaos that eventually erupted. This event was followed by a chain of defaults in the prime sector causing the stocks of the many financial institutions react in a free fall. When Wall Street bailout was approved by Congress and used in response, the conventional wisdom was that it saved the entire economy from collapsing. That wisdom can definitely be debated. Whether it’s right or wrong to transfer the losses of Wall Street institutions onto the shoulders of the taxpayer is a topic I will leave for another article. For now I’ll just focus on whether real estate may be a potential investment to park your money.

Real estate activity along with market prices reached their peak in 2006 only to collapse in 2007. 2009 suffered a serious decline in activity while prices continued to decline. Relative to 2006 peak prices homes have dropped a stunning 45% but they have not reached pre-2000 levels. If you’re wondering what the future holds for real estate it’s possible that a healthy activity – resulting from an increased number of qualified buyers – may return within six to ten years but no inflationary boom for a very long time. I know it doesn’t sound very encouraging but keep in mind that buying low and selling high is only the speculative side of investing. If, for example, you’re currently invested in mutual funds or stocks enjoying dividend returns your real estate portfolio can generate – in many cases – better monthly cash-flow returns. Ten, twelve, or fifteen percent annual returns are quite feasible but chances are your financial adviser will not want you divested from Wall Street’s paper assets.

While Americans’ retirement portfolios will remain heavily invested in the volatile U.S. stock market, Australians, Canadians, British, and Asians are finding the American real estate to be appealing for their own retirement. Rather than looking at it as an inconvenient investment they are taking advantage of qualified professionals who handle everything for them including the eviction of undesirable tenants, making repairs, or whatever else is associated with the maintenance of the investment. These international buyers have learned that they can’t get similar rates of returns by investing in their own countries’ real estate. Whether leased-out single family homes or apartment buildings all the way to investing in bigger commercial projects via private real estate syndicate funds, they mean business and are unstoppable.

So, how does one assess the investment potential for real estate? First, ask yourself if it generates substantial revenues not only during good times but during hard times, as well. Today’s economic environment is not one that makes people cheer and if you choose carefully you’ll find that a ten to fifteen percent on your money is feasible. The next question to ask yourself is if it’s a real or a paper asset. Can it vanish and will it be there ten, twenty, thirty yeas down the road? Differentiate between owning the physical asset and the paper secured by a physical asset.

Does real estate lose its earnings potential with time? It could since there is no guarantee in life. But with a proper maintenance, the right team, and the fact that it’s an asset satisfying a human need (housing) the chances are diminished. Does it keep up with inflation? Its price may not go up soon but its value most likely will, and with time prices will follow values.

Finally, one of the well known rhetoric is that real estate is not liquid. That is very true. At the same time, unless you’re a short term Wall Street trader, how often have you liquidated your securities portfolio for a generous profit? My point is that if you have to sell your stocks, bonds, or mutual funds it usually is because you’re in a desperate situation and that translates, most likely, in a loss. Take this thought and apply it to a real estate investment that you hold free and clear. Its liquidation could be much faster when and if you’d be willing to take a loss. Reality is that there is no such thing as an absolute perfect investment. There are pro’s and con’s attached to each one of them. Your homework is to weigh them to determine the best fit for your investment needs. In his book “A Gift to my Children” Jim Rogers – who is one of today’s most successful investors in the world –
advises us to “Never ignore the bear market!” The one with an eye for profitable opportunities already knows it. The bear market comes with depressed values but the depression that prevails in most people’s minds represents the hidden treasure of opportunities for only a few.

Listen to Marc Faber: It’s Time to Buy US Real Estate, but Choose Carefully

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