All Forum Posts by: Account Closed

Great point about strategies.

Mike runs a fine business and it works well in his market. Others have shared the details of their business in other locations where the numbers work differently. Mike is correct that if you want to run a landlord business you need great cash flow. In some markets you can not be a successful landlord without pumping a lot of cash into deal. Your returns are not going to be as high compared to deals where you put no cash in.

The key is to recognize there are options, use the options that work for you and for your market. Personally I am not great at being a maintenance person. Best that I pay someone else even if they cost me more than I might have been able to do the work for on my own.

I also can earn a lot consulting in the technology space. Hence my REI strategy tends reflect that I travel a lot.

Markets require different strategies. People require different strategies.

Some strategies are flawed in specific markets so Mike is correct when he points out that some investors lose money or get it wrong. They either picked the wrong strategy or they implemented it poorly.

Live and learn. There is no one answer that is right in all markets for all people.

If you want to follow the news about the investment banks and any new losses being reported just check one of three websites. 1 charges and the other two are more or less free.

ft.com - Financial Times
wsj.com - Wall Street Journal
nytimes.com - New York Times

Current financial news and good commentary as to the facts and meaning vs. the spin sometimes found in the more local press which is too far away from the investment banking business. There are some other good papers but the three above are pretty much front and center.

The Wall Street losses are a trailing indicator.

A fair amount of the losses are not even directly connected to the home mortgagees as some are trading positions that people got wrong. Other traders booked profits. When you net the two you start to see what was really sub-prime vs. was was just noise from trading.

Similar to other times where large losses were reported.

One on the list is Barclays. They reported something like £7B in annual profits after losses for last year.

ML lost a lot. One investor who traded with them booked more than $3B personally as profit for last year. I believe his fund was up closer to $10B for the year.

Many, many people are losing their homes because they were fooled into thinking prices only go up. No one working on Wall Street talked to them directly so the foolish advice was from local folks. Family, friends, agents or various sources and the local press.

S CA has had three down markets in about 30 years. People appear to forget that when they saw the prices rising early in the decade. Stuff happens.

In many or most cases the borrower is just a dumb, innocent person who did not know just how dumb they were being.

Some knew they were betting the farm. Most of those were investors or other speculators.

At the same time there was no 1 person or group that did something wrong with intent. It was more excessive behavior and a reaction to current events.

The savvy investors need to know when the surf is up and ride. They know they can not control the waves. They also need to remember where the rocks are and that collateral damage happens if they have a wipe out.

The write offs Wall Street are taking are a bit disconnected from the mortgages given how they sliced and diced the mortgage backed securities. In some of the cases the write off at one bank is booked as a profit at another as the securities were traded. One investor made over 3 billion last year by selling short specific securities to some investment banks. They took the hit and he put the cash in his bank account. No net loss in that case. Two people betting with one winner and one loser.

The topic overall is complex but lets focus on making money. This is a mother of a wave so get your boards out and start surfing.

From the dot.com era remember one thing. Google was from after the crash or the period during the crash. It was not really much of a company prior to 1999 or 2000.

Toby,

Spot on.

The interest rate is what is charged to cover both the return and the risk of default.

In many sectors credit spreads have gone up. Most of the info I am seeing is from the wholesale market but the principal is the same.

Spreads or margins are up. Maybe back to where they should have been to cover the real risks lenders are taking. Risks some lenders mis-priced.

Toby,

What you use the debt for is important. Also the total level of the debt compared to the value.

We are on the same page but the subtle differences can be confusing to some reader so splitting hairs is a good idea.

Robert,

I am well aware of Shiller. I just think of his work as worth understanding rather than taking as a gift from god.

I read it at the time. I have read some of his prior work.

I still believe people need to check the methodology so they know what is included, what is dropped out and why certain changes in the property can not be represented in the analysis.

Like I said earlier, I like the index and I find it useful. I just know that what the index says and what some people think do not line up.

Shiller was on CNBC one morning earlier this year or late last year. He was explaining why certain cities were up and why one city was unlikely to fall. Not the conclusion some seem to reach when they look at the data.

1. I would have a plan that looks at all the options and does not depend on one option being the only one that works.

2. I would never start the project until I knew what my options are. Markets change. A project might make no sense if a market changes. Hence you do not want to start what is effectvely a long term project unless you were very confident you had exits that will still work.

3. Lenders do not fund construction projects if they do not see clear exits.

Dumb money follows trends.

REI has been around for a long time. There are peaks and falls in the interest levels.

I am glad the dumb money has largely pulled back.

Minna,

When there is a full bathroom on the ground floor the property might be changed so that there is also a bedroom. They appeal to people who have mobility issues.

If a project does not inspire you it might be best to pass. You are talking about a project that will take time so see if there is a better place for your time.

Inspire = clear profit potential and a strong idea of what needs to be done.