Don’t Believe Everything You Think
This is part of a series that is being posted to my website because blogs read backwards and this item needs to read forward. You may read everything published to-date at http://www.segrestrealty.com Hit the “Investment Guidelines” link.
Just because we have studied markets and real estate and finance and investing doesn’t mean we know anything; because we are in a brave new world. The lawyers talk about “the prudent man”. Economists assume that markets (and the people who comprise them) will always act in their own self interest. All of this is junk. Markets are subject to mass hysteria. The prudent man does not know any more than you or I. The new rule, at least in the near future is chaos.
Fractal geometrists tell us even chaos is predictable. I am not a fractal geometrist. Are you? What those of us who lack either that skill or crystal balls, we need to be prepared for anything. The old models show predictable rental income over years and a “reversion” that is usually higher than the purchase price. Now we need to be more conservative. We need to factor vacancy and credit losses into single tenant net leased properties. The reversion should, even best case, be the same as the purchase price. Perhaps we should be willing to accept lower yields, at least in the short term.
Real estate is still the most permanent asset there is. But the old adage, “they ain’t making any more of it” has been negated with condominiums, fractionals and Dubai.
This is too late now; but a professor from NY University once said Real Estate operates on a 14 year cycle. Real estate investors have a 9 year memory. We can learn from our friends in South America. They have dealt with rising and falling prices over the years. They know how to prosper in any environment.
David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/
Wednesday, July 15, 2009
Friday, July 10, 2009
High Equity Positions
High Equity Positions
This is part of a series that is being posted to my website because blogs read backwards and this item needs to read forward. You may read everything published to-date at http://www.segrestrealty.com Hit the “Investment Guidelines” link.
The conventional wisdom in real estate has always been to use leverage and buy as much property as possible with as little money as possible. In the past USA property has always increased in value and time can heal our mistakes. No more. Inflation and increasing property values (in relation to other things) may be a thing of the past.
It seems that,as much money as the governments need to print to cover the deficits and the stimulus packages, there should be inflation. Unfortunately this is only part of the equation. Inflation happens when too much money chases too few goods (assets). It is possible that the surplus of assets on the market will be temporary. One would think the too much money would be permanent. Not so. The too much money thing may not even exist.
The amount of money in circulation is measured by M1, M2 and M3. An economics class is not necessary to understand these classes. The main thing to understand is that money supply includes money owed. This money counts for more because it is counted twice. The bank considers the note as an asset. The borrower has the money. When banks don’t make loans or when people default on loans, money supply shrinks. Money supply also shrinks as stocks and bonds lose value.
The slower and smaller the economy, the less chance there is of obtaining a suitable rent for a property. The high equity owner remains flexible enough to reduce rent or sit on a vacant property when there is a high equity position.
David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/
M1, M2 and M3 are explained at : http://www.theshortrun.com/data/Financial/aggregates/msexplain.html
This is part of a series that is being posted to my website because blogs read backwards and this item needs to read forward. You may read everything published to-date at http://www.segrestrealty.com Hit the “Investment Guidelines” link.
The conventional wisdom in real estate has always been to use leverage and buy as much property as possible with as little money as possible. In the past USA property has always increased in value and time can heal our mistakes. No more. Inflation and increasing property values (in relation to other things) may be a thing of the past.
It seems that,as much money as the governments need to print to cover the deficits and the stimulus packages, there should be inflation. Unfortunately this is only part of the equation. Inflation happens when too much money chases too few goods (assets). It is possible that the surplus of assets on the market will be temporary. One would think the too much money would be permanent. Not so. The too much money thing may not even exist.
The amount of money in circulation is measured by M1, M2 and M3. An economics class is not necessary to understand these classes. The main thing to understand is that money supply includes money owed. This money counts for more because it is counted twice. The bank considers the note as an asset. The borrower has the money. When banks don’t make loans or when people default on loans, money supply shrinks. Money supply also shrinks as stocks and bonds lose value.
The slower and smaller the economy, the less chance there is of obtaining a suitable rent for a property. The high equity owner remains flexible enough to reduce rent or sit on a vacant property when there is a high equity position.
David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/
M1, M2 and M3 are explained at : http://www.theshortrun.com/data/Financial/aggregates/msexplain.html
Thursday, July 9, 2009
Credit is Still Important
1. Credit is Still Important;but Should Carry Less Weight in Making Decisions
This is part of a series that is being posted to my website because blogs read backwards and this item needs to read forward. You may read everything published to-date at http://www.segrestrealty.com Hit the “Investment Guidelines” link.
It is still extremely important to check out tenants and developers and contractors well before doing business with them Investors often select properties based on the rating of the tenant. This is a big factor in determining the cap rate at which the property sells. The weight given to this factor needs to be reduced. We have seen that even banks and automobile companies can go broke.
Often leases to franchises are guaranteed by the franchisor. Retail companies frequently have excellent credit and reputations; but if Santa Claus doesn’t come or if he doesn’t bring enough revenue even the best retailers may go into receivership. Receivership (Bankruptcy) gives a tenant the right to continue paying rent (not rent in arrears) and stay in the property or just walk away from the lease.
Lease terms are as critical as the tenant’s credit. A big company can go dark and continue paying the rent. They may or may not continue maintaining the building and the parking lot and landscaping. Often the tenant chooses the new tenant on a sub-lease and may put someone in the property that does not complement the current tenant-mix. The loss of a really good anchor can affect the income of all of the other tenants. In free standing build to suit facilities, always use “market rent” to determine the value rather than contract rent. Most of these leases contain “weasel clauses”, that allow the tenant to move out with no repercussion. If the contract rent is higher than market rent, the landlord can be upside down.
David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/
This is part of a series that is being posted to my website because blogs read backwards and this item needs to read forward. You may read everything published to-date at http://www.segrestrealty.com Hit the “Investment Guidelines” link.
It is still extremely important to check out tenants and developers and contractors well before doing business with them Investors often select properties based on the rating of the tenant. This is a big factor in determining the cap rate at which the property sells. The weight given to this factor needs to be reduced. We have seen that even banks and automobile companies can go broke.
Often leases to franchises are guaranteed by the franchisor. Retail companies frequently have excellent credit and reputations; but if Santa Claus doesn’t come or if he doesn’t bring enough revenue even the best retailers may go into receivership. Receivership (Bankruptcy) gives a tenant the right to continue paying rent (not rent in arrears) and stay in the property or just walk away from the lease.
Lease terms are as critical as the tenant’s credit. A big company can go dark and continue paying the rent. They may or may not continue maintaining the building and the parking lot and landscaping. Often the tenant chooses the new tenant on a sub-lease and may put someone in the property that does not complement the current tenant-mix. The loss of a really good anchor can affect the income of all of the other tenants. In free standing build to suit facilities, always use “market rent” to determine the value rather than contract rent. Most of these leases contain “weasel clauses”, that allow the tenant to move out with no repercussion. If the contract rent is higher than market rent, the landlord can be upside down.
David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/
Wednesday, July 8, 2009
Location, Location, Location
New Rules for Successful Investing
1. Location, Location, Location
This is part of a series that is being posted to my website because blogs read backwards and this item needs to read forward. You may read everything published to-date at http://www.segrestrealty.com Hit the “Investment Guidelines” link.
This sounds like an old rule; but it has a whole new meaning. For retail properties is means a high traffic, good visibility, easy access location. Industrial Properties need linkages to rail and other transportation and affordable utilities and access to suitable employees. Residential, especially 2nd homes, need really easy international access. Some type of attraction must be available, such as beaches, mountains, golf courses, etc.
The location must also be considered from an environmental aspect. Beach properties need to take in consideration the possible rise of sea level and the availability of insurance. Agricultural properties need to factor possible changes in temperature and moisture. Any property that requires irrigation, should anticipate huge spikes in the cost of water. A 1 degree increase in the average annual temperature can change the suitabilility of land for a type of crop.
Political risk is also becoming more and more a consideration. How likely is a huge political swing to occur? What will be the implications of such a swing? How satisfied is the general population with the status quo? What are the rules for ownership and how likely are they to change? These are all important questions for the new investor. No one is immune to the consequences of fanatical forces.
There will, for quite a while, be a lot of properties chasing not too many currency units. Only the “necessary” properties will have good markets.
David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/
1. Location, Location, Location
This is part of a series that is being posted to my website because blogs read backwards and this item needs to read forward. You may read everything published to-date at http://www.segrestrealty.com Hit the “Investment Guidelines” link.
This sounds like an old rule; but it has a whole new meaning. For retail properties is means a high traffic, good visibility, easy access location. Industrial Properties need linkages to rail and other transportation and affordable utilities and access to suitable employees. Residential, especially 2nd homes, need really easy international access. Some type of attraction must be available, such as beaches, mountains, golf courses, etc.
The location must also be considered from an environmental aspect. Beach properties need to take in consideration the possible rise of sea level and the availability of insurance. Agricultural properties need to factor possible changes in temperature and moisture. Any property that requires irrigation, should anticipate huge spikes in the cost of water. A 1 degree increase in the average annual temperature can change the suitabilility of land for a type of crop.
Political risk is also becoming more and more a consideration. How likely is a huge political swing to occur? What will be the implications of such a swing? How satisfied is the general population with the status quo? What are the rules for ownership and how likely are they to change? These are all important questions for the new investor. No one is immune to the consequences of fanatical forces.
There will, for quite a while, be a lot of properties chasing not too many currency units. Only the “necessary” properties will have good markets.
David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/
Tuesday, July 7, 2009
New Rules for Successful Real Estate Investing
New Rules for Successful Investing
This is the outline for a series of articles. Because a blog posts backwards and this article should be read forwards. I will be posting all other entries in proper order to my webpage at http://www.segrestrealty.com under investment guidelines.
1. Location, Location, Location
2. Credit is still important; but should carry less weight in making decisions
3. High equity positions
4. Don’t believe everything you think
5. Appreciation is a bonus, not a given
6. Speculation has to take a new form
7. Look for the path of progress
8. You will never lose money on a property you don’t buy
This is the outline for a series of articles. Because a blog posts backwards and this article should be read forwards. I will be posting all other entries in proper order to my webpage at http://www.segrestrealty.com under investment guidelines.
1. Location, Location, Location
2. Credit is still important; but should carry less weight in making decisions
3. High equity positions
4. Don’t believe everything you think
5. Appreciation is a bonus, not a given
6. Speculation has to take a new form
7. Look for the path of progress
8. You will never lose money on a property you don’t buy
Monday, July 6, 2009
The Pain from the Gain in Spain is Mostly to Spain
The Pain from the Gain in Spain is Mostly to Spain
In reference to a blog article posted on March 4, 2009 About the higher capital gains tax paid by foreigners in Spain, it turns out the EU does not think this is fair. A British couple was the 1st to challenge the rule and get a refund from the EU court. Now there are probably about 10,000 more British taxpayers that will be looking for refunds. There are of course many other foreigners who have been hustled. Look for a massive refund. OPP magazine predicts 350,000,000 pounds.
Many of the articles in this blog have focused on a new business model for the real estate industry in the future. The idea that when the recession is over, business will return to normal is ridiculous. For almost a year, my poor weak mind has focused on this problem. The 1st part of the problem may be solved. In an industry that serves investors it is necessary to predict what will make an investor successful, before determining how to serve that investor. I have developed a new set of rules, and will be sticking out my skinny little neck to describe the things that will make the investor of the coming years successful. These rules will be discussed in coming blogs.
The next phase of the model will answer the question, “how does a broker serve this investor?” Hopefully that question will be easier and require less time to develop a successful strategy.
David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/
In reference to a blog article posted on March 4, 2009 About the higher capital gains tax paid by foreigners in Spain, it turns out the EU does not think this is fair. A British couple was the 1st to challenge the rule and get a refund from the EU court. Now there are probably about 10,000 more British taxpayers that will be looking for refunds. There are of course many other foreigners who have been hustled. Look for a massive refund. OPP magazine predicts 350,000,000 pounds.
Many of the articles in this blog have focused on a new business model for the real estate industry in the future. The idea that when the recession is over, business will return to normal is ridiculous. For almost a year, my poor weak mind has focused on this problem. The 1st part of the problem may be solved. In an industry that serves investors it is necessary to predict what will make an investor successful, before determining how to serve that investor. I have developed a new set of rules, and will be sticking out my skinny little neck to describe the things that will make the investor of the coming years successful. These rules will be discussed in coming blogs.
The next phase of the model will answer the question, “how does a broker serve this investor?” Hopefully that question will be easier and require less time to develop a successful strategy.
David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/
Friday, July 3, 2009
If Real Estate Were Like the Stock Market
If Real Estate Were Like the Stock Market…
I would be rich. I saw the pre-sale/off plan debacle in Miami coming in 2005. I warned people about it. If there were a way to do it, I would have sold those contracts short. I see the new off plan replacement scam coming. It is called Fractionals. I wish I could sell them short. One tell-tale sign is the people involved. The same brokers and developers who were selling off plan properties are now selling fractionals. Where is the after market for the off plan properties? Where is the after market for the fractionals.
These are two great things about the stock market. 1) The short sale means something very different there. 2) There is always a market. The investor can cut their losses at any time and move on. I think if real estate investors could see that other investors were selling their investments short they might think harder before making a speculative move. It would also add a new revenue stream for brokers.
In the USA we have always believed that real estate would never go down. Maybe the market would slow; but the value would always remain. The exception of course was the great depression. Read Thomas Wolfe’s “Look Homeward Angel”. Read about the wild speculation in real estate that led up to the depression.
David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/
I would be rich. I saw the pre-sale/off plan debacle in Miami coming in 2005. I warned people about it. If there were a way to do it, I would have sold those contracts short. I see the new off plan replacement scam coming. It is called Fractionals. I wish I could sell them short. One tell-tale sign is the people involved. The same brokers and developers who were selling off plan properties are now selling fractionals. Where is the after market for the off plan properties? Where is the after market for the fractionals.
These are two great things about the stock market. 1) The short sale means something very different there. 2) There is always a market. The investor can cut their losses at any time and move on. I think if real estate investors could see that other investors were selling their investments short they might think harder before making a speculative move. It would also add a new revenue stream for brokers.
In the USA we have always believed that real estate would never go down. Maybe the market would slow; but the value would always remain. The exception of course was the great depression. Read Thomas Wolfe’s “Look Homeward Angel”. Read about the wild speculation in real estate that led up to the depression.
David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/
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