How to Apply New Rules (Pt. 2)
In part one group investment (not fractionals) was discussed. The broker as an arranger of these groups was also discussed. The fee model for the broker may be difficult when doing these “arrangements”. When is a broker a real estate agent; and when is s/he a securities salesperson? The federal guidelines on this are pretty generous. If one works with investors who meet a special criterion no registration of the investment or the broker is required. If the investment is of a certain size or less, or if there are less than a certain number of investors, on registration is required.
The real question comes from the individual states “blue sky laws”. Each state has different requirements about this type of investing and syndicating these investments. Most of these laws have more to do with the way the investments are promoted than the way they are structured. Many states only regulate investments that are located in other states. My recommendation would be that the agent research the requirements of both state and federal government carefully.
The first projects should fall within the guidelines that do not require regulation. The investment should be small enough that the broker can keep it within a circle of friends. A broker involved in this should very carefully examine their own expertise. S/he should only do those things where there competence is unquestionable. The decision of whether or not to participate in the investment and in what capacity should be determined in the beginning. An agent who has not made successful investments or developments should find someone who has and partner with them.
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 29, 2009
Monday, July 27, 2009
Broker as Arranger
Broker as Arranger
An Arranger may be what a broker is anyway. Arrange for the introduction of a buyer and seller. What about arranging to introduce investors? Can we do that with a real estate license? I don’t really know and I am sure it is different in every state and nation. I know that some brokers are putting together investments and selling parts of them to investors. In the cases I know of, the broker is keeping part of the property and acting as an asset manager and as a property manager.
This could be an attractive situation for an investor who wants to make sure the “partner” has something to lose. It could also be an excellent opportunity for a conflict of interest. There will be many really good investment opportunities in areas or fields where the broker may not have the necessary expertise to manage the assets or the property. A broker would be severely limited that only worked with as many projects as s/he could manage on their own. Perhaps a better model would be for the broker to identify some really competent investor/asset manager types and help them find compatible investors to obtain the necessary capital.
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/
An Arranger may be what a broker is anyway. Arrange for the introduction of a buyer and seller. What about arranging to introduce investors? Can we do that with a real estate license? I don’t really know and I am sure it is different in every state and nation. I know that some brokers are putting together investments and selling parts of them to investors. In the cases I know of, the broker is keeping part of the property and acting as an asset manager and as a property manager.
This could be an attractive situation for an investor who wants to make sure the “partner” has something to lose. It could also be an excellent opportunity for a conflict of interest. There will be many really good investment opportunities in areas or fields where the broker may not have the necessary expertise to manage the assets or the property. A broker would be severely limited that only worked with as many projects as s/he could manage on their own. Perhaps a better model would be for the broker to identify some really competent investor/asset manager types and help them find compatible investors to obtain the necessary capital.
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 24, 2009
How to Apply New Rules for Investing (Pt. 1)
How to Apply New Rules for Investing (Pt. 1)
So, how do the new rules work? Maybe we need to mix them with some old rules. I took some investment classes about 100 years ago from a guy named Jimmy Napier. One of his rules was, “Never put more than 20% of you net worth in one investment.” Considering the way assets fluctuate in value today, maybe a better rule would be, “never put more than 20% of your cash in one investment.”
This means if one has $1,000,000 in cash, they should only put $200,000 in one investment. If we go with the high equity position rule, this could be pretty limiting. I have a friend who has a friend that keeps putting together groups to buy hotels and apartment houses. Each person puts in $100,000. They buy the property for cash, which gives a very high degree of flexibility. They have been achieving yields of around 30% over the life of the investment. They have a limited life of each investment.
I don’t know that someone else would achieve such a high yield. The real key to this program is the idea of friends and family. All of these guys know and trust one another. The lead investor puts his own money in the deal and has a proven track record. Group investments may be the wave of the future. The Asians have done it well forever. Why cannot others do it as well? This is shared ownership. It is not a fractional however. This may be a way that a good broker can build a new niche. The next article will talk about how.
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/
So, how do the new rules work? Maybe we need to mix them with some old rules. I took some investment classes about 100 years ago from a guy named Jimmy Napier. One of his rules was, “Never put more than 20% of you net worth in one investment.” Considering the way assets fluctuate in value today, maybe a better rule would be, “never put more than 20% of your cash in one investment.”
This means if one has $1,000,000 in cash, they should only put $200,000 in one investment. If we go with the high equity position rule, this could be pretty limiting. I have a friend who has a friend that keeps putting together groups to buy hotels and apartment houses. Each person puts in $100,000. They buy the property for cash, which gives a very high degree of flexibility. They have been achieving yields of around 30% over the life of the investment. They have a limited life of each investment.
I don’t know that someone else would achieve such a high yield. The real key to this program is the idea of friends and family. All of these guys know and trust one another. The lead investor puts his own money in the deal and has a proven track record. Group investments may be the wave of the future. The Asians have done it well forever. Why cannot others do it as well? This is shared ownership. It is not a fractional however. This may be a way that a good broker can build a new niche. The next article will talk about how.
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/
Thursday, July 23, 2009
You Will Never Lose Money on a Property You Don’t Buy
You will never lose money on a property you don’t buy
This is the last article 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 may sound overly simplistic. Think about it. How many times have you said “I could have bought that property for $*****? The fact is you didn’t buy it. You did not make the huge profit that would have come in your mind. You did not have to make the payments for 30 years and deal with the tenants and the maintenance and the upfit.
Up until a year ago almost every property we see would look good in retrospect. You could have bought a property 15 years ago for $90,000. Today it is worth $210,000. Wow, what a missed opportunity. With compounding the profit was only 5.8% per year. The opportunity missed was even less spectacular if part of the original price was financed. It is quite rare to have a significant positive cash flow on a residential property that is purchased with OPM (other people’s money). A significant negative cash flow is more common. If the owner’s effort is factored in the negative cash flow is even greater. Positive cash flows are more common in commercial properties; but the significant appreciation is not.
The new investor still has plenty of opportunities. They need to be scrutinized more closely. Frequently a buyer is heard to say. I bought a property worth $300,000 for $100,000. The truth is property is worth $100,000; because that is all it would bring on the market. A real business approach must be applied to investment real estate. This will be the source of future wealth building.
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 the last article 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 may sound overly simplistic. Think about it. How many times have you said “I could have bought that property for $*****? The fact is you didn’t buy it. You did not make the huge profit that would have come in your mind. You did not have to make the payments for 30 years and deal with the tenants and the maintenance and the upfit.
Up until a year ago almost every property we see would look good in retrospect. You could have bought a property 15 years ago for $90,000. Today it is worth $210,000. Wow, what a missed opportunity. With compounding the profit was only 5.8% per year. The opportunity missed was even less spectacular if part of the original price was financed. It is quite rare to have a significant positive cash flow on a residential property that is purchased with OPM (other people’s money). A significant negative cash flow is more common. If the owner’s effort is factored in the negative cash flow is even greater. Positive cash flows are more common in commercial properties; but the significant appreciation is not.
The new investor still has plenty of opportunities. They need to be scrutinized more closely. Frequently a buyer is heard to say. I bought a property worth $300,000 for $100,000. The truth is property is worth $100,000; because that is all it would bring on the market. A real business approach must be applied to investment real estate. This will be the source of future wealth building.
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 22, 2009
Look For the Path of Progress
Look for the path of progress
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.
We talked about the path of progress in the last article. It can be identified using the standard methods that everyone uses of neighborhood or urban plans or DOT projections. The problem here is that everyone knows these tricks. We need something new. How do we predict the path of progress?
There used to be an old management system called MBWA (Management by walking around). I cannot help but think this would be the way to evaluate a neighborhood that in the path of progress. Walk around a neighborhood talk to the people who live there. See what they think. See what the neighbors are doing. Look for neighborhoods where the neighbors are calling about people who don’t keep their yards well. Look for neighborhoods where neighbors call the police about suspicious activity.
Don’t move too fast. The neighborhoods generally continue to go down for awhile before they come up. Remember, you have to own the property and deal with the problems until the turn around is well under way. As with technology it is better to be on the cutting edge rather than the bleeding edge. Identifying neighborhoods and properties on the rise will be the best way to be ahead of the crowd.
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.
We talked about the path of progress in the last article. It can be identified using the standard methods that everyone uses of neighborhood or urban plans or DOT projections. The problem here is that everyone knows these tricks. We need something new. How do we predict the path of progress?
There used to be an old management system called MBWA (Management by walking around). I cannot help but think this would be the way to evaluate a neighborhood that in the path of progress. Walk around a neighborhood talk to the people who live there. See what they think. See what the neighbors are doing. Look for neighborhoods where the neighbors are calling about people who don’t keep their yards well. Look for neighborhoods where neighbors call the police about suspicious activity.
Don’t move too fast. The neighborhoods generally continue to go down for awhile before they come up. Remember, you have to own the property and deal with the problems until the turn around is well under way. As with technology it is better to be on the cutting edge rather than the bleeding edge. Identifying neighborhoods and properties on the rise will be the best way to be ahead of the crowd.
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 21, 2009
Speculation Has to Take a New Form
Speculation has to take a new form
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.
There used to be a saying among real estate investors, “time will heal your mistakes”. No more. Speculators need to have a good knowledge of the path of progress. This is where profits will come from in the future. A good source of this knowledge is the comprehensive plans that most cities have. These plans normally have a year number such as 2010 or something like that.
It is a good idea to see how past plans were implemented. Some municipalities take these plans seriously and some don’t. The next place to look is the department of transportation. Progress follows roads. Once again it is necessary to see how high the priority is for the roads. The hardest thing about this strategy is timing. Usually the property owners know about the coming roads and think the property will be worth more than the reality of the project will bear.
Look for improving neighborhoods. Gentrification is a great source of profits in property. There are always property owners in blighted neighborhoods who are ready to sell and escape. These projects usually require renovation as well as speculation; but the investor makes an entrepreneurial profit as well. Contractors often use these projects to keep crews busy during slow times.
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.
There used to be a saying among real estate investors, “time will heal your mistakes”. No more. Speculators need to have a good knowledge of the path of progress. This is where profits will come from in the future. A good source of this knowledge is the comprehensive plans that most cities have. These plans normally have a year number such as 2010 or something like that.
It is a good idea to see how past plans were implemented. Some municipalities take these plans seriously and some don’t. The next place to look is the department of transportation. Progress follows roads. Once again it is necessary to see how high the priority is for the roads. The hardest thing about this strategy is timing. Usually the property owners know about the coming roads and think the property will be worth more than the reality of the project will bear.
Look for improving neighborhoods. Gentrification is a great source of profits in property. There are always property owners in blighted neighborhoods who are ready to sell and escape. These projects usually require renovation as well as speculation; but the investor makes an entrepreneurial profit as well. Contractors often use these projects to keep crews busy during slow times.
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/
Monday, July 20, 2009
Appreciation is a bonus, not a given
Appreciation is a bonus, not a given
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.
For my lifetime (I’m 62), there has been an increase in the price of real estate almost every year. In the years where there was a tiny slide backwards the steady progress resumed to give an overall upward trend. In the long term, even though it will start from a lower level this trend will probably continue. The increases may just track inflation though. Supply is still higher than demand and construction still continues. Households are being consolidated, reducing demand.
When calculating IRR a “reversion” (sales proceeds) is always added to the last years projected cash flow. It is quite rare to see a reversion number used that is lower than the purchase price. That could become the new reality. Think about an empty freestanding retail store. Many of these building are expensive types of construction. The additional costs is factored into the rent. When the original lease is up, a new tenant may not need a building that is designed to another company’s model. The building may even have functional or style obsolescence. The value of the property at that time is land value minus the cost of tearing down the building.
We know that the retail, office and industrial uses are changing rapidly because of the internet and outsourcing. How can we be sure that the buildings we have will still be useful? I really don’t think we can. Cost recovery allowed by the IRS is 39 years. Perhaps we should consider that a building will actually be worthless at the end of that time and plan accordingly. If the building is still useful, we get a bonus. If not, we are prepared.
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.
For my lifetime (I’m 62), there has been an increase in the price of real estate almost every year. In the years where there was a tiny slide backwards the steady progress resumed to give an overall upward trend. In the long term, even though it will start from a lower level this trend will probably continue. The increases may just track inflation though. Supply is still higher than demand and construction still continues. Households are being consolidated, reducing demand.
When calculating IRR a “reversion” (sales proceeds) is always added to the last years projected cash flow. It is quite rare to see a reversion number used that is lower than the purchase price. That could become the new reality. Think about an empty freestanding retail store. Many of these building are expensive types of construction. The additional costs is factored into the rent. When the original lease is up, a new tenant may not need a building that is designed to another company’s model. The building may even have functional or style obsolescence. The value of the property at that time is land value minus the cost of tearing down the building.
We know that the retail, office and industrial uses are changing rapidly because of the internet and outsourcing. How can we be sure that the buildings we have will still be useful? I really don’t think we can. Cost recovery allowed by the IRS is 39 years. Perhaps we should consider that a building will actually be worthless at the end of that time and plan accordingly. If the building is still useful, we get a bonus. If not, we are prepared.
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
Don't Believe Everything You Think
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/
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/
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/
Thursday, July 2, 2009
Inflation and the Consequences
Inflation and the Consequences
Typically in an inflating economy the price of real estate increases along with everything else. Today we have a situation where the cost of housing is actually the factor that is holding down inflation. Rents, both commercial and residential, are going down. The prices of everything else except maybe durable goods are going up. No-one is buying durable goods anyway. Landlord’s expenses are rising. Rents are falling.
My old friend Freddy Stephens always said real estate prices were like a ski rope. The boat goes around a curve and the line gets slack. When the boat straightens up the rope tightens up and progress continues. For the years 2003-2006 we were skiing on the outside of the curve, going much faster than the boat. Now we are on the inside and sinking fast. I just hope the boat is not out of gas.
Real estate investors are generally befriended by inflation. The value of the properties goes up. The relative value of the debt goes down. If someone will get the boat started and tighten up this ski rope before we drown this may still happen.
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/
Typically in an inflating economy the price of real estate increases along with everything else. Today we have a situation where the cost of housing is actually the factor that is holding down inflation. Rents, both commercial and residential, are going down. The prices of everything else except maybe durable goods are going up. No-one is buying durable goods anyway. Landlord’s expenses are rising. Rents are falling.
My old friend Freddy Stephens always said real estate prices were like a ski rope. The boat goes around a curve and the line gets slack. When the boat straightens up the rope tightens up and progress continues. For the years 2003-2006 we were skiing on the outside of the curve, going much faster than the boat. Now we are on the inside and sinking fast. I just hope the boat is not out of gas.
Real estate investors are generally befriended by inflation. The value of the properties goes up. The relative value of the debt goes down. If someone will get the boat started and tighten up this ski rope before we drown this may still happen.
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 1, 2009
Dr. Nathan Booth
Dr. Nathan Booth
I met Dr. Booth in 1989 as we took our CIPS courses together. He made a huge impression on me then for his intelligence and his kind spirit and his willingness to share his vast knowledge. We finished the courses together. He became an instructor in the program immediately. It took me a little longer. As I learned to teach the courses he became one of my mentors. I was and am extremely grateful to him.
I acquired a great deal of wisdom and many ideas from Nathan; but one thought that I always teach in my classes is something that he taught me outside the class. I was having a horrible transaction, representing a client who was extremely greedy and dishonest. I mentioned this to Nathan and made the comment that I would never do business with anyone from that ethnic group again. Nathan’s response was, “When you have a problem with an individual of any ethnic group give the individual full credit, not the ethnic group. When something goes well give the whole ethnic group credit.” I have done a lot of business with people of the ethnic group that I was ready to reject since then, thanks to Nathan.
Nathan died on June 26. He will leave a hole in my heart; but my heart is larger thanks to him.
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 met Dr. Booth in 1989 as we took our CIPS courses together. He made a huge impression on me then for his intelligence and his kind spirit and his willingness to share his vast knowledge. We finished the courses together. He became an instructor in the program immediately. It took me a little longer. As I learned to teach the courses he became one of my mentors. I was and am extremely grateful to him.
I acquired a great deal of wisdom and many ideas from Nathan; but one thought that I always teach in my classes is something that he taught me outside the class. I was having a horrible transaction, representing a client who was extremely greedy and dishonest. I mentioned this to Nathan and made the comment that I would never do business with anyone from that ethnic group again. Nathan’s response was, “When you have a problem with an individual of any ethnic group give the individual full credit, not the ethnic group. When something goes well give the whole ethnic group credit.” I have done a lot of business with people of the ethnic group that I was ready to reject since then, thanks to Nathan.
Nathan died on June 26. He will leave a hole in my heart; but my heart is larger thanks to him.
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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