Wednesday, January 16, 2008

Gold Up, Dollar Down, Inflation out the Wazoo

What the heck is the Fed Chair thinking? I know, I know, keep the country out of a recession. Yeah, right, like that is going to happen. The good news is my gold stock is way up. The bad news is so is my Canadian bacon. This country is in so much trouble from the Cheap Credit Party that the only real solution is to turn on the printing presses and print our way out of "real" debt. I knew the hang-over (from that credit party) was going to hurt but man, now to add insult to injury my savings is worth a lot less this year than it was in just 2005.Thanks Federal Reserve Geniuses. I appreciate being penalized for actually (shock and awe) having a savings account instead of being 10 bazillion in debt. Don't get me wrong I have a mortgage just like everyone else but I did not go out and buy 10 Miami condos on margin to rack up my debt. The only silver lining is our real estate is now comparatively cheap to foreign investors and tourists.Inflation is now getting ready to leave the earth's orbit ala 1970's style. I can't wait to order my first $100 cup of coffee. Okay, enough complaining and feeling sorry for my country, now on to what are we going to do from here.The only way I know how to preserve buying power (wealth) is to own hard assets such as gold, real estate or some other object that does not deteriorate over time. Gold is sky high because the dollar is in the toilet not because it has "gone up in value". The price of gold has gone up, not the value. If you don't believe me check out the price of gold in Euros. Sure it is higher now than a few years ago in terms of euros but in dollars, it has tripled!I think the best investment is real estate! With that said, I don't think everyone should go out and buy a house or office building but referring back to a blog entry this summer "When it Pays to Buy, Buy" there is a time and place to buy real estate. I have a personal example to share with you. I just love the beach. I have always wanted a place at the beach where my family can spend holidays and lazy weekends. Here in SW Florida, there are some tremendous deals on beachfront condos. Many of these condos demand high rental rates from December through April. If you find the right deal the rent from this period of time may cover you entire ownership costs. So while inflation is rampant and your banker is only paying you 2.5% for your money why not invest in something that pays for itself and you enjoy.Another example is rental property. While we are in this huge housing slump it is a good time to hunt for bargains where the rent will cover your carry costs. Office space is another option however, one must be particularly careful when considering office and industrial property as the economy is slowing down and many small business will go under and potentially a lot of vacant space may emerge driving down rental rates.My favorite asset type is either bulk lots from builders or complete developments where the developer is in hot water for one reason or another. The key to these deals though is CASH! The reason why investors and companies are in trouble is DEBT! Don't get me wrong, debt is a wonderful tool but it is analogues to a sledge hammer; hit the right spot and mountains will move, hit the wrong spot and you lose your left foot. If investors and companies did not have debt on their books they could afford to hold their assets forever without fear of bankruptcy. Of course the way to make money is to turn your assets over and over making profits along the way. Obviously no sales equal no profits. So if you are long on cash and short on investment real estate, take another look around you for opportunity.I was just offered bulk lots by one developer for 33% of the development costs. I was sharing this with a friend of mine yesterday and he asked how I know that particular deal is worth going after. My answer was simply, when you can buy something for less, or in this case a lot less, than what it costs to build you will be way ahead of your future competition. I can turn around and sell these bulk lots to another investor a year to two from now for 50% of the cost to build and still make a 50% profit on my investment. Not too shaby when you consider the alternative is a 2% or 3% money market rate.I am still taking questions so feel free to email me.

Monday, January 7, 2008

Investing WIthout Training Wheels

I hope you had a good holiday break! I spent a lot of time with my 6-year old son while he was out of school. My wife and I had talked about teaching him to ride his bike without his training wheels over his winter vacation. I understand the fear of crashing can be overwhelming when learning to ride a bike but I was not prepared for what my son had to say when I talked with him about taking off his training wheels. He said "Daddy, I like my training wheels!" and then he said "I don't want to learn how to ride without them and I don't want to crash!" Something about his tone and sincerity got me thinking not only about his training wheels but about how we as investors can get comfortable with our own version of the training wheels, namely guaranteed returns (i.e. CD's and money market accounts). I like CD's too but when they are paying 4.5% and real inflation is north of that it is time to venture into other areas for real return on our investment dollars.Training wheels are great for teaching the basics, how to move forward, how to stop and how to steer. Just like my son enjoys riding his bike with the training wheels we investors can get a little too comfortable with super "safe" investments. My son does not yet understand that his mobility will greatly increase allowing him to change direction more quickly and take corners faster. Of course his fear of falling is natural and real (it is great to know that his sense of self preservation is intact). I am sure he will skin his knees a few times and it will hurt, but he will learn and as he gains skill he will fall much less often until he does not fall at all. Back to investing without training wheels. Sure you can buy REIT stocks as a form of investing in real estate but that is like watching someone else ride the bike.If you have the courage to learn about real estate investing it can be just as rewarding as the free feeling of riding a bike without training wheels. While the risks are higher in real estate than in CD's, the mobility, maneuver ability and real return on investment can also be greater. The best way to protect yourself with real estate is to not have all of your investment capital in real estate! If you are unsure about how much to invest in real estate, start with 10% of your cash reserves. Since some of my real estate investments are raw land, I hold a significant amount of my reserves in CD's to balance the increased risk of my investment strategy.One of the best ways to mitigate risk in the real estate market is to align yourself with a knowledgeable partner and learn from them. This could be from a commercial real estate broker, a developer looking for partners or just other like minded people with investment objectives similar to your own. You may skin your knees on your first few investments but once you learn how to invest and what types of investments work for you then you will be well on your way to making real returns on your investments.I know the real estate market is looking pretty rough right now. A little fear is healthy (remember we have that sense of self preservation for a reason). Too much fear and you will have to find a way to live with less money than when you started.While I am trying to build a regular base of readers, you can email me with questions or even challenges. Happy New Year. Things will be great in 2008!