If you have been reading my blog over the last two years you know I am an investor at heart. I like real estate. I like stocks. I like to make money.
Let's be honest with each other, the last month has been full of gut wrenching twists and turns in the stock market and there is no liquidity for investors or developers to buy land or distressed assets. It seems as though even foreign money has left US investment markets.
If you watch the news all you see is everything wrong with the world, financially and otherwise. Remember September 11? Remember when the dow sank to 7600 in 2002? Remember the RTC (the predecessor to the 700B plan we have now)? No doubt about it, things look as bleak as ever.
On the other hand, we are still here right? We are still free citizens and we have our families. I would like you to realize not all is as bad as it appears.
As I write this blog on Friday morning, the dow started the day with a 500 point drop. Sounds like we are going from bad to worse...
Yet, at the same time, some banking stocks are RISING. Imagine that, some financial stocks are being purchased when EVERYONE knows the banking system is the last place you want to be right now.
Again, not everything you see and hear is as it appears. As I read what I have written I realize I do not have anything of substance to point to, other than the past 100 years, that proves things will get better. An investor named Benjamin Graham proposed a philosophy about investing that he called "Mr. Market". I want to talk about Mr. Market a bit here because I think it helps to put the stock market and the real estate market into perspective. Here is a direct link to a site that talks about Mr. Market in detail (http://www.buffettsecrets.com/mr-market.htm).
Essentially Mr. Market is a crazy fool that shows up on your doorstep every business day to make you an offer for your stocks or other investments. You can choose to listen to him or slam the door in his face. Either way, he will not be offended and will be back tomorrow to make another offer. Some of his offers are insanely high while other offers are incredibly low. Oh, I left out one important fact, Mr. Market is crazy. In fact, you would be wise not to listen to him at all!
Would you go to an insane asylum for advice on investing? Hell no! If you own a quality investment feel free to listen when Mr. Market offers a great price. However, please realize just because Mr. Market is offering you a high price does not mean your investment is worth that much. Sometimes you are better off to sell when the crazy man offers you a price that cannot be justified.
The point I am trying to get across to you is the market IS crazy. Yeah I feel like dirt too when I see one or all of my stocks being traded for less than what I paid for them. I am sure you do too. If you invested in some penny stock(s) you may never see your money back. There are many stocks, thousands of them in fact, that are down because of fear. I bought a stock for 9.30 that pays 1.87 per year in dividends. That stock is now trading at 7. I think it will be bid up in price over time (at least I hope it will) but until that day, I still get a 20% dividend every year.
Take a look yourself. There are great companies that make real money and pay real dividends for crazy (low) prices. At some point soon we will see a bounce off the lows we are seeing this week and surely into next week too. By bounce I do not mean the dow will be at 12,000 by Halloween but the market will recover. There will be some catalyst (I have no idea what it will be) causing the market to move back up.
Remember, Mr. Market is crazy and should not be consulted on value issues. Keep your chin up, try to stay positive and spend some time with you family...unless of course Mr. Market is a member of your family...
Friday, October 10, 2008
Monday, August 4, 2008
Which Way is Up?
The real estate market is a funny thing. Real Estate is similar to the stock market in that you have "value" plays, "growth" plays and "momentum" plays. One big difference is in the stock market there are a lot of buyers and sellers for every stock making the "investments" easy to liquidate (convert to cash) whereas in the real estate market there is just one seller and one buyer for each property making the "investment" not very easy to liquidate.
Today, all over America, there are many sellers and few buyers. Let's face it, "Cash is King". Another saying I have heard is the Golden Rule - "those who have the gold make the rules". Home and general real estate prices will have decline until there are an equal number of buyers and sellers a point which is known as either a balanced market or market equilibrium. Everyone wants to know when this balance will occur. As you have heard before, real estate markets are local so every area will have a different answer to that question.
In Michigan with many lay-offs and still more future lay-offs there are fewer buyers than sellers and it is conceivable that imbalance will continue for years, many years. Here in sunny Florida, our job market is not too healthy either but we do have tourism going for us. While we too have fewer buyers than sellers, I think we will recover a little faster than other areas of the country.
Last week I attended an Urban Land Institute program called Market Trends where the speaker was my good friend Mike Timmerman. Mike is a smart guy. Gutsy too. Mike said in 2005 things were "pricey" but still selling. In 2006 he said things were slowing down and could even slow down a whole lot more. In 2007 Mike said in hind sight we saw a peak in 2005 and we were (in June 2007) about 18 months into a predicted 36 month cycle. There is no science to predict how long a market will take to recover other than looking at past cycles and comparing them to the features of the present cycle. I want to be clear- Mike did not give a date and time when the market would be "fully recovered". However, he did say he thought this down-turn would last longer than more recent times such as the 1991-93 market. As I said, Gutsy. Well it turns out Mike may have called it just right. We won't know for another year or so but he is looking smarter and smarter as the months click by.
So, which way is up? I think there is a lot of anxiety with most living breathing people out there. There is the pending Presidential Election, more foreclosures are hitting the market every day, homes are selling for less than it cost to build them let alone what you paid for the same house two years ago. Let's face it, there is just not a lot of good news right now. So the immediate answer to the question is DOWN. As (asking) prices fall, more buyers will enter the existing home market and remove the deeply discounted homes from the listed inventory. As inventory declines, the number of sales will eventually match demand and then we will start to see slight appreciation...eventually. While I hate to see homes on my street sell for less than it would cost to build today, at least they are selling and that is the key to prices heading up.
I have a quick story for you about someone that called to sell me a lot near my office. The lot is just beautiful and is in a great location. In 2005 the lot would have sold for $300k. Today they are asking $85k and wanted to know if I had an interest. I passed on the opportunity and the reason I gave them was sure it is a good price compared to 2005 but with so many existing homes on the market for less than replacement cost, when would someone want to buy the lot from me to build a new home AND pay me enough to make a profit? The answer is nobody knows, so I passed. At $40k I would take the risk. At $85k I just cannot. If they reduce the price I may buy it. Until then at least I get interest on my cash.
Today, all over America, there are many sellers and few buyers. Let's face it, "Cash is King". Another saying I have heard is the Golden Rule - "those who have the gold make the rules". Home and general real estate prices will have decline until there are an equal number of buyers and sellers a point which is known as either a balanced market or market equilibrium. Everyone wants to know when this balance will occur. As you have heard before, real estate markets are local so every area will have a different answer to that question.
In Michigan with many lay-offs and still more future lay-offs there are fewer buyers than sellers and it is conceivable that imbalance will continue for years, many years. Here in sunny Florida, our job market is not too healthy either but we do have tourism going for us. While we too have fewer buyers than sellers, I think we will recover a little faster than other areas of the country.
Last week I attended an Urban Land Institute program called Market Trends where the speaker was my good friend Mike Timmerman. Mike is a smart guy. Gutsy too. Mike said in 2005 things were "pricey" but still selling. In 2006 he said things were slowing down and could even slow down a whole lot more. In 2007 Mike said in hind sight we saw a peak in 2005 and we were (in June 2007) about 18 months into a predicted 36 month cycle. There is no science to predict how long a market will take to recover other than looking at past cycles and comparing them to the features of the present cycle. I want to be clear- Mike did not give a date and time when the market would be "fully recovered". However, he did say he thought this down-turn would last longer than more recent times such as the 1991-93 market. As I said, Gutsy. Well it turns out Mike may have called it just right. We won't know for another year or so but he is looking smarter and smarter as the months click by.
So, which way is up? I think there is a lot of anxiety with most living breathing people out there. There is the pending Presidential Election, more foreclosures are hitting the market every day, homes are selling for less than it cost to build them let alone what you paid for the same house two years ago. Let's face it, there is just not a lot of good news right now. So the immediate answer to the question is DOWN. As (asking) prices fall, more buyers will enter the existing home market and remove the deeply discounted homes from the listed inventory. As inventory declines, the number of sales will eventually match demand and then we will start to see slight appreciation...eventually. While I hate to see homes on my street sell for less than it would cost to build today, at least they are selling and that is the key to prices heading up.
I have a quick story for you about someone that called to sell me a lot near my office. The lot is just beautiful and is in a great location. In 2005 the lot would have sold for $300k. Today they are asking $85k and wanted to know if I had an interest. I passed on the opportunity and the reason I gave them was sure it is a good price compared to 2005 but with so many existing homes on the market for less than replacement cost, when would someone want to buy the lot from me to build a new home AND pay me enough to make a profit? The answer is nobody knows, so I passed. At $40k I would take the risk. At $85k I just cannot. If they reduce the price I may buy it. Until then at least I get interest on my cash.
Friday, July 25, 2008
Top 10 reasons how you know it's time to buy
10. Loan officers are going door to door with applications like girl scouts selling cookies
9. Your 10 year old is thinking about buying her own place and moving out
8. Houses are listed as buy one get one free
7. Poor Iraqi's are buying are buying vacation homes in the U.S.
6. Your stimulus check exceeds your 20% down payment
5. Owning a home is cheaper than living in your car
4. Your loan papers say "pay us when you have the money"
3. There are more "for sale" signs on the street than there are houses
2. You can buy a McMansion for a Happy Meal price
1. Even Ed McMahon can afford to buy
9. Your 10 year old is thinking about buying her own place and moving out
8. Houses are listed as buy one get one free
7. Poor Iraqi's are buying are buying vacation homes in the U.S.
6. Your stimulus check exceeds your 20% down payment
5. Owning a home is cheaper than living in your car
4. Your loan papers say "pay us when you have the money"
3. There are more "for sale" signs on the street than there are houses
2. You can buy a McMansion for a Happy Meal price
1. Even Ed McMahon can afford to buy
Monday, June 30, 2008
Recession: What it is and what it is not
Recently a reader of this blog asked me what causes a recession. The definition is pretty easy; namely a recession is when our economic growth is negative for six consecutive months. The actual cause of a recession is, in my opinion, fear. Many people and companies are fearful right now. They are afraid of losing their jobs, they are afraid of losing customers and they are afraid things will not get better.
Deep inside, we know things are constantly changing. Why it was just yesterday things were booming and many thought that would never end too. Something I want to point out is the word "recession" is associated with "bad" economic times; yet, the definition is simply our growth has slowed down or declined slightly. That does not sound so bad does it? Here is where I think I may be able to shed some light on why the reader asked the original question.
On a personal level things do not look good right now. Many have lost jobs or have more than one friend that has lot a job. Everyday we hear about a friend or friend of a friend that has lost their house to foreclosure. Gas costs more. Food costs more. Heck almost everything costs more but we are not making more money. Budgets are squeezed and folks are learning to get by with far less than we are accustomed to having. When 25% of our population are experiencing what I just described they stop spending on anything but the necessities (the money they used to spend is called discretionary money). When they stop spending on crazy indulgences like eating out (at McDonalds), buying clothes (at Target) and entertainment (going to the movies twice a year) our economy feels it in terms of reduced earnings on Wall Street. When that happens we start to hear on the nightly news about how our economy is slipping into a decline. The news of a decline reinforces the notion that we are in economic trouble and even more of the population cuts back on spending. This reduced spending trickles down to wait staff at restaurants, car dealerships, movie theaters and even Wal-Mart.
When will it end?? It is going to take some time for people to feel better about their lives and begin spending again. As I have mentioned in a previous blog, listen to your friends and neighbors. When they are eating out again, going to the movies and buying new cars you will see light at the end of the tunnel. One important fact I left out is in order to spend more you not only have to feel better but you need more money to spend. So we do need jobs to be more plentiful and such for incomes to rise to provide the additional cash needed to spend in our economy.
Have you heard the US dollar has lost value against most foreign currencies? While that is bad for people who save (and buy oil from foreign countries) it is good in that Europeans are encouraged to visit our country and spend money as everything here is literally on sale, everything. The infusion of outside spending may be just the shot in the arm we need. On the other hand, I hate simple solutions and so that will not be the only thing needed to push our economic growth into positive territory. If that explanation helps you understand and feel better I am very happy to be of service. If you are happy right now, you may want to stop reading.
For those of you still with me, I have a confession to make; I don't think we are in a recession, but not because I think like the US government idiots who claim inflation is nil and everything is fine. I think where I live in SW Florida, we are in a depression. And that folks, is a whole lot worse than a recession. When I was a kid (late 70's) there was talk of the country in a recession and I asked my parents what a recession was. I cannot remember the answer but I do remember my follow-up question which is what is the difference between a recession and depression. My parents told me about two people; one guy did not get a raise and was concerned about losing his job the other guy had lost his job and was about to run out of savings. The first guy was in a recession and the second was in a depression. The funny thing is the two guys were neighbors.
My point is this, forget about labels on the economy as they are meaningless. The important thing is how are YOU doing? Are you in a depression? Do whatever you have to to get by. Things will get better in time. You may have to move or change careers. But things will change
Deep inside, we know things are constantly changing. Why it was just yesterday things were booming and many thought that would never end too. Something I want to point out is the word "recession" is associated with "bad" economic times; yet, the definition is simply our growth has slowed down or declined slightly. That does not sound so bad does it? Here is where I think I may be able to shed some light on why the reader asked the original question.
On a personal level things do not look good right now. Many have lost jobs or have more than one friend that has lot a job. Everyday we hear about a friend or friend of a friend that has lost their house to foreclosure. Gas costs more. Food costs more. Heck almost everything costs more but we are not making more money. Budgets are squeezed and folks are learning to get by with far less than we are accustomed to having. When 25% of our population are experiencing what I just described they stop spending on anything but the necessities (the money they used to spend is called discretionary money). When they stop spending on crazy indulgences like eating out (at McDonalds), buying clothes (at Target) and entertainment (going to the movies twice a year) our economy feels it in terms of reduced earnings on Wall Street. When that happens we start to hear on the nightly news about how our economy is slipping into a decline. The news of a decline reinforces the notion that we are in economic trouble and even more of the population cuts back on spending. This reduced spending trickles down to wait staff at restaurants, car dealerships, movie theaters and even Wal-Mart.
When will it end?? It is going to take some time for people to feel better about their lives and begin spending again. As I have mentioned in a previous blog, listen to your friends and neighbors. When they are eating out again, going to the movies and buying new cars you will see light at the end of the tunnel. One important fact I left out is in order to spend more you not only have to feel better but you need more money to spend. So we do need jobs to be more plentiful and such for incomes to rise to provide the additional cash needed to spend in our economy.
Have you heard the US dollar has lost value against most foreign currencies? While that is bad for people who save (and buy oil from foreign countries) it is good in that Europeans are encouraged to visit our country and spend money as everything here is literally on sale, everything. The infusion of outside spending may be just the shot in the arm we need. On the other hand, I hate simple solutions and so that will not be the only thing needed to push our economic growth into positive territory. If that explanation helps you understand and feel better I am very happy to be of service. If you are happy right now, you may want to stop reading.
For those of you still with me, I have a confession to make; I don't think we are in a recession, but not because I think like the US government idiots who claim inflation is nil and everything is fine. I think where I live in SW Florida, we are in a depression. And that folks, is a whole lot worse than a recession. When I was a kid (late 70's) there was talk of the country in a recession and I asked my parents what a recession was. I cannot remember the answer but I do remember my follow-up question which is what is the difference between a recession and depression. My parents told me about two people; one guy did not get a raise and was concerned about losing his job the other guy had lost his job and was about to run out of savings. The first guy was in a recession and the second was in a depression. The funny thing is the two guys were neighbors.
My point is this, forget about labels on the economy as they are meaningless. The important thing is how are YOU doing? Are you in a depression? Do whatever you have to to get by. Things will get better in time. You may have to move or change careers. But things will change
Sunday, June 8, 2008
Let's Make Hay While The Sun Shines
Remember when everyone was making money hand over fist in the real estate market? Boy the sun was shining then. Now that it is raining cats and dogs in the real estate market, I believe the sun is shining for investors. Sorry to mix my metaphors. I will not go out on a limb and say this is the perfect time to buy because "perfect" means different things to different people. Some investors are looking for income producing properties, and others are looking for an end return on their investment.
With that caveat behind me, I will say this; it is the perfect time to look for/at whatever type of property appeals to you. The market will be flat for some time, so many will want to wait for prices to move up before they buy. I respect that. However, the best properties will be purchased and therefore off of the market first. As prices rise it will be the inferior properties that will be left to choose from. The sellers and developers I am talking to are increasingly willing to deal if you have cash and a quick close. We are emerging from the winter of real estate market cycle and headed into spring. Spring is the time to sew our seed for future harvest. As investors we take on risk, that is just part of the job. That does not mean we need to take on unlimited risk. We can measure risk and take steps to mitigate for present or future risk. If you are concerned that you may buy something too soon, then you may want to take on one or more partners to share that risk with you. Another way to mitigate risk is to only buy when the investment pays for itself in terms of cashflow. The way to make money going forward is to NOT take large risks but a lot of calculated risks.
The market of 2005 is gone forever. It was too good to last and was therefore destined to end. There is nothing wrong with assets that do not double in value every year or two. While the stock market has been trading sideways for the last 6 months I have been buying stocks and selling options against those stocks to lock in a 25% return. In some cases I made 25% and in others I only made 25% while the stock doubled. My point is this; if you protect your principal with risk mitigation, there is nothing wrong with double digit gains. So, while it is raining cats and dogs, let's make hay while the sun shines. I am telling you the future is so bright we will need to wear shades.
With that caveat behind me, I will say this; it is the perfect time to look for/at whatever type of property appeals to you. The market will be flat for some time, so many will want to wait for prices to move up before they buy. I respect that. However, the best properties will be purchased and therefore off of the market first. As prices rise it will be the inferior properties that will be left to choose from. The sellers and developers I am talking to are increasingly willing to deal if you have cash and a quick close. We are emerging from the winter of real estate market cycle and headed into spring. Spring is the time to sew our seed for future harvest. As investors we take on risk, that is just part of the job. That does not mean we need to take on unlimited risk. We can measure risk and take steps to mitigate for present or future risk. If you are concerned that you may buy something too soon, then you may want to take on one or more partners to share that risk with you. Another way to mitigate risk is to only buy when the investment pays for itself in terms of cashflow. The way to make money going forward is to NOT take large risks but a lot of calculated risks.
The market of 2005 is gone forever. It was too good to last and was therefore destined to end. There is nothing wrong with assets that do not double in value every year or two. While the stock market has been trading sideways for the last 6 months I have been buying stocks and selling options against those stocks to lock in a 25% return. In some cases I made 25% and in others I only made 25% while the stock doubled. My point is this; if you protect your principal with risk mitigation, there is nothing wrong with double digit gains. So, while it is raining cats and dogs, let's make hay while the sun shines. I am telling you the future is so bright we will need to wear shades.
Thursday, May 1, 2008
Friends, Romans and Countrymen, Lend Me Your Ears...
Dear reader, I have started a new company called Keystone Development Advisors, LLC to share and provide access to our development expertise for investors and lenders.
We have started a new blog at this address
http://keystonellc.blogspot.com/. This will be my last entry at http://keystonecompaniesllc.blogspot.com/.
I look forward to serving the investment and lending community with integrity and expertise. While there are presently a multitude of consultants available with varying degrees of expertise, few can offer the personal experience I have making my own money and getting beat-up in public hearings.
Some may ask, "well then, why don't you just do your own (investing) thing if you are so good at it". To that I say I do invest. However, unlike the Easter Bunny I do not like to put all of my eggs in one basket, a lot but not all. Some of the deals I come across are in the 20 million to 300 million dollar range. Those have always been "big" deals but especially now with tight lending standards and an uncertain economy. Many consultants also are very specialized. They only focus on finances or construction or getting a certain type of permit. I have done all of the above with my own money at risk. I know how every "unexpected" zig and zag in the entitlement, permitting and development affects the bottom line. I am a risk taker yet conservative. I believe risk can be measured and mitigated or a deal is not worth doing. I am educated yet have street smarts. I know the fastest way to double your money is to fold it over and put it back in your pocket. How many "consultants" match that?
We have started a new blog at this address
http://keystonellc.blogspot.com/. This will be my last entry at http://keystonecompaniesllc.blogspot.com/.
I look forward to serving the investment and lending community with integrity and expertise. While there are presently a multitude of consultants available with varying degrees of expertise, few can offer the personal experience I have making my own money and getting beat-up in public hearings.
Some may ask, "well then, why don't you just do your own (investing) thing if you are so good at it". To that I say I do invest. However, unlike the Easter Bunny I do not like to put all of my eggs in one basket, a lot but not all. Some of the deals I come across are in the 20 million to 300 million dollar range. Those have always been "big" deals but especially now with tight lending standards and an uncertain economy. Many consultants also are very specialized. They only focus on finances or construction or getting a certain type of permit. I have done all of the above with my own money at risk. I know how every "unexpected" zig and zag in the entitlement, permitting and development affects the bottom line. I am a risk taker yet conservative. I believe risk can be measured and mitigated or a deal is not worth doing. I am educated yet have street smarts. I know the fastest way to double your money is to fold it over and put it back in your pocket. How many "consultants" match that?
Friday, April 11, 2008
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